OP Bancorp 10-K

Item 9A. Controls and Procedures. Evaluation of disclosure controls and procedures The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered in this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that 83 date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Our management concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on these criteria Changes in internal control over financial reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during The period covered to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 84 PART III Item 10. Directors, Executive Officers and Corporate Governance. T HE BOARD OF DIRECTORS The Board of Directors oversees our business and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through, among other things, discussions with the Chief Executive Officer, other key executives and our principal outside advisors (legal counsel, outside auditors, and other consultants), by reading reports and other materials that we send them and by participating in Board and committee meetings. Pursuant to OP Bancorp’s Articles of Incorporation and Bylaws, our Board of Directors is authorized to have not less than seven members nor more than 13 members, and is currently comprised of seven members. The exact number of directors may be fixed from time to time within the range set forth in our Bylaws or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by resolution of our Board. Our Board of Directors has affirmatively determined that six of our seven current directors qualify as independent directors based upon the rules of The Nasdaq Stock Market and the SEC. There are no arrangements or understandings between any of the directors and any other person pursuant to which he or she was selected as a director. The following provides biographical information for our directors, including their names, ages and year in which they began serving as a director of the Company. All of the directors of Open Bank became members of the OP Bancorp board of directors when we reorganized into our present bank holding company structure in 2016. The age indicated in each director’s biography is as of December 31, 2023. Brian Choi . Mr. Choi, age 73, a director of the Bank since 2008, has served as the Chairman of the Board of the Bank since 2010, and OP Bancorp since 2016. Mr. Choi has served as Chairman and Chief Executive Officer of Universal Financing Corporation since 1991, and as Chairman and Chief Executive Officer of Ehese Investments, LLC since 2001. Mr. Choi has previous experience as a bank director with Alaska First Bank & Trust (formerly First Interstate Bank of Alaska) where he served on the Board from 1999 through 2008. He was the president of the Korean Community of Anchorage, Alaska from 2003 to 2004. He was the President of the Korean Christian Businessmen’s Committee of North America from 2006 to 2008. He also served as the President of the Federation of Korean American Association of Northwest States of United States of America, which included Oregon, Washington, Idaho, Montana, and Alaska from 2010 to 2012. Mr. Choi is a graduate of Korea University where he received a Bachelor of Science in Political Science and Foreign Relations. Mr. Choi contributes to the Board over 21 years of leadership and substantial experience in the community banking industry. He brings a wide-ranging understanding of the bank management, finance and operations. His leadership ability, judgment and prior business executive experience led the Board to elect him as Chairman of the Board. Ernest E. Dow . Mr. Dow, age 74, has served as a member of the Board since the founding of the Bank in 2005. He is a retired Certified Public Accountant and has been a Principal of Dow & Sohn CPAs for 15 years. He has maintained his accounting practice for over 38 years providing accounting, auditing, tax and business consulting services for international and local companies operating in Southern California. Mr. Dow served as a director for Pacific Union Bank from May 2003 until the bank’s acquisition by Hanmi Bank in April 2004. Mr. Dow is a member of the California Society of Certified Public Accountants. Mr. Dow obtained his Bachelor of Science from California State University, Northridge, in 1976. Mr. Dow’s significant accounting experience provides among other things in-depth knowledge of generally accepted accounting principles and auditing standards to the Board. Mr. Dow was a member of Choi Dow Ivan Hong & Lee Accountancy Corporation (“CDIH&L”) from August 1992 to December 2007. He is particularly suited to serve as Chair of the audit committee. Soo Hun Jung, M.D . Dr. Jung, age 74, has served as a Board member since the founding of the Bank in 2005. He is a medical doctor who has been in private medical practice since 1982. Dr. Jung obtained his medical degree from Pusan National University College of Medicine, Pusan, South Korea, in 1975. He subsequently completed his general surgery internship at Mount Sinai Hospital, New York, in 1979 and his internal medicine residency at Hospital of the Good Samaritan (affiliated with U.S.C. Medical School) Los Angeles, in 1982. Dr. Jung is affiliated with various hospitals and medical associations. He is a Member of the Board of Good Samaritan Medical Practice Association; Good Samaritan Hospital, and Korean-American Medical Group. In addition, he is a member of American Medical Association, American 85 College of Physicians, and Korean Medical Association. He serves as Clinical Assistant Professor of Medicine for U.S.C. School of Medicine. As a long-term member of the Board, Mr. Jung has a broad-based understanding of the Company and the Bank and is deeply committed to the community through his medical practice and affiliations with medical organizations and associations. Hyung J. Kim . Mr. Kim, age 61, is a founder and CEO of KLK Capital Management LLC, California-based investment firm. Prior to establishing his own investment firm, he served as Vice President at Merrill Lynch, with more than 20 years of experience in the finance industry. In addition to receiving his Bachelor of Arts in Chemistry from Binghamton University, he holds his Certified Financial Planner professional designation and the Financial Industry Regulatory Authority (FINRA) Series 3, 7, and 66 licenses. With his extensive knowledge and understanding of macroeconomics and finance, he contributes to the Board with historical economic trends, current headlines, and forecasting economic trends. Min J. Kim . Ms. Kim, age 64, has served as the President and Chief Executive Officer and a member of the Board of the Company and the Bank since April 2010. She has over 39 years of banking experience in the Korean banking community. Prior to joining the Bank, she served as Chief Executive Officer and President of Nara Bancorp and Nara Bank (now Bank of Hope and Hope Bancorp Inc) for three and half years assuming those positions in 2006. From 1996 to March 2006, Ms. Kim served in various executive positions with Nara Bancorp and Nara Bank, including Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Credit Officer, and Senior Vice President and Chief Credit Administrator. Prior to joining Nara Bancorp and Nara Bank in 1995, Ms. Kim served in numerous positions with Hanmi Bank, including Vice President and Manager of the Western Street Branch of Hanmi Bank in Los Angeles from 1985 to 1995. Ms. Kim has a Bachelor of Sciences degree in Finance from the University of Southern California. Ms. Kim contributes to the Board her breadth of knowledge of the Company’s bank business, markets, community and culture. She provides the Board with an overall perspective of all facets of the Company’s business, financial condition and strategic direction. Sunny Kwon. Ms. Kwon, age 67, is the President of UNI & Good Friend Insurance, an independent retail insurance brokerage in the Greater Los Angeles area. She has over 40 years of leading insurance experience within the Korean and American insurance industries. She has also been an active, founding member of KAIFPA , the Korean American Insurance and Financial Professional Assoc i ation , since 1985, where she has not only held a Board Member seat since then but has been Board Chair in 2002-2003 and 2020-2022. Ms. Kwon commenced her active Member Advisory Council of United Valley Agencies in 2022. S he is serving as a Board Member of the Korean American Chamber of Commerce of Orange County in 2023. Yong Sin Shin . Ms. Shin, age 64, has served as a Board member since the founding of the Bank in 2005. She is the President and Secretary of CJS Groups Inc (DBA Bicici & Coty Fashion), an apparel manufacturer and wholesaler in Los Angeles, California which she founded in 1994. Ms. Shin was a fashion designer and co-manager of Coty Fashion in Sao Paulo, Brazil, from 1985 to 1994. Ms. Shin obtained her Bachelor of Science in Dietary Nutrition from University of Sao Paulo, Sao Paulo, Brazil, in 1982. Ms. Shin co-founded her own manufacturing and wholesale business in Los Angeles, California and contributes to the Board her substantial business acumen developed though years of proven entrepreneurial success. Also as an active member of the Korean American Chamber of Commerce in Los Angeles she brings to the Board various business and cultural insights from the local community. Board Leadership Structure The Board of Directors is committed to maintaining an independent Board, and for many years a majority of the Board has been comprised of independent directors. Further, it is the practice of the Company to separate the roles of Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting our strategic direction and the day-to-day leadership and performance. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer. The Board further believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that may arise when the roles are combined, and that an independent director who has not served as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman of the Board. 86 Risk Management and Oversight The Board of Directors has ultimate authority and responsibility for overseeing our risk management. The Board of Directors monitors, reviews and reacts to material enterprise risks identified by management. The Board receives specific reports from executive management on financial, credit, liquidity, interest rate, capital, operational, legal compliance and reputation risks and the degree of exposure to those risks. The Board helps ensure that management is properly focused on risk by, among other things, reviewing and discussing the performance of senior management and business line leaders. Board committees have responsibility for risk oversight in specific areas. The Audit Committee oversees financial, accounting and internal control risk management policies. The Human Resources & Compensation Committee assesses and monitors risks in our compensation program. The Nomination & Governance Committee oversees the nomination and evaluation of the Board and is responsible for overseeing our corporate governance principles. The Bank’s Risk and Compliance Committee oversees the risk and compliance programs, adherence to management policies and procedures, compliance with regulatory requirements and information technology strategies and activities. The Bank’s Loan & Credit Policy Committee is primarily responsible for credit and other risks arising in connection with our lending activities, which includes overseeing management committees that also address these risks. The Bank’s Asset/Liability Management Committee monitors our interest rate risk, with the goal of structuring our asset-liability composition to maximize net interest income while minimizing the adverse impact of changes in interest rates on net interest income and capital. Committees of the Board Our Board of Directors has established standing committees in connection with the discharge of its responsibilities. These committees include the Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Our Board of Directors also may establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our articles and bylaws. Audit Committee The Company has a separately designated standing Audit Committee as required by the rules of The Nasdaq Stock Market. The Audit Committee charter adopted by the Board sets out the responsibilities, authority and specific duties of the Audit Committee. The Audit Committee charter is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The responsibilities of the Audit Committee include the following: • oversee the quality and integrity of regulatory and financial accounting, financial statements, financial reporting processes and systems of internal accounting and financial controls; • oversee the annual independent audit of the Company’s financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence and performance; • oversee and retain internal audit and/or outsourced internal audit and review; • oversee the performance of our internal/external audit function and independent registered public accounting firm; • approve related-person transactions subject to Item 404 of Regulation S-K; and • review and discuss the annual audited financial statements with management and the independent auditors prior to publishing the annual report and filing the Annual Report on Form 10-K with the SEC. Each member of the Audit Committee meets the independence criteria as defined by applicable rules and regulations of the SEC for audit committee membership and is independent and is “financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The members of the Audit Committee are Brian Choi, Ernest E. Dow (committee chair), Soo Hun Jung, M.D., Sunny Kwon, Hyung J. Kim, and Yong Sin Shin. The Audit Committee met thirteen times in 2023. 87 Human Resources & Compensation Committee The Company has a separately designated Human Resources & Compensation Committee (“HRCC”), which consists entirely of independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Human Resources & Compensation Committee has adopted a charter, which is available on our website at www.myopenbank.com under the “Investor Relations” tab. The Human Resources & Compensation Committee has the following responsibilities: • annually review the Company’s competitive position for each component of the overall human resource and compensation plan (especially base salary, annual incentives, long term incentives, and supplemental executive benefit programs); • review trends in compensation in all industries; • annually review with the Chief Executive Officer, the Company’s compensation strategy to assure that the Chief Executive Officer and the management team (senior vice president and above) and their compensation is in relation to their contributions to the Company’s growth, profitability, and meeting strategic goals; • annually review and recommend for approval to the Board the overall performance and total compensation for the Chief Executive Officer, including agreed upon goals and objectives relevant to the Chief Executive Officer’s compensation, evaluate the performance of the Chief Executive Officer in light of those goals and objectives, and set the Chief Executive Officer’s compensation level based upon this evaluation, taking into consideration the Company’s performance and relative shareholder return, and the value of similar incentive awards to Chief Executive Officers at comparable companies; • annually review and recommend to the Board the annual director’s compensation and any additional compensation for services on committees of the Board, service as a committee or Board chairman, meeting fees or any other benefit payable by virtue of the director’s position as a member of the Board; • evaluate and approve recommendations from the Chief Executive Officer regarding compensation and other employment related matters such as hiring, promotions, terminations or severance payments for all executive vice presidents, and post review of recommendations from the CEO regarding compensation and other employment related matters such as hiring, compensation, promotions, terminations or severance payments for all senior vice presidents; • periodically review and recommend to the Board all matters pertaining to broad based benefit plans of the Company, equity plans, senior management or director bonus plans and pension plans and performance based plans; • review, establish and modify, as it sees fit, all employment policies and procedures related to officers and directors; • administer the annual executive incentive compensation plan in a manner consistent with the Company’s compensation strategy including the following incentive plan elements: eligibility and participation; annual allocation and actual award of equity incentive grants paid to the Chief Executive Officer and the members of the management team; corporate financial goals as they relate to total compensation; total funds reserved for payment under the plan; and annual review of the incentive equity and cash management incentive plan; • recommend to the Board for approval of the submission to shareholders of all new equity-related incentive plans, and administer the Company’s long term incentive programs in a manner consistent with the terms of the plans including the following: eligibility; vesting terms and conditions; and total shares reserved for grants; • annually review the Chief Executive Officer and management succession plan; • in consultation with management, oversee regulatory compliance with respect to compensation matters, including overseeing the Company’s policies on structuring compensation programs to preserve tax deductibility; • perform any other duties or responsibilities the Board may expressly delegate to the committee from time to time on matters relating to the Company’s compensation programs; and • review and approve general employee welfare benefit plans and other plans on an as needed basis. 88 The members of the Human Resources & Compensation Committee are Brian Choi, Ernest E. Dow, Soo Hun Jung, M.D., Sunny Kwon (committee chair), Hyung J. Kim, and Yong Sin Shin. The Committee met six times in 2023. Nomination & Governance Committee The Company has a separately designated the Nomination & Governance Committee, which consists of entirely independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Nomination & Governance Committee has adopted a charter, which is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The purposes of the Nomination & Governance Committee include the following responsibilities: • identify individuals qualified to become Board members; • recommend to the Board director nominees for election at each annual meeting of shareholders or to fill vacancies on the Board; • formulate and recommend for adoption by the full Board a policy for consideration of nominees for election to the Board who are recommended by shareholders of the Company; • consider candidates recommended by the shareholders of the Company in accordance with the Board’s policy for such consideration; • consider the certain qualifications and factors when evaluating and selecting potential new directors in accordance with the Corporate Governance Guidelines, see “Corporate Governance and Board Matters – Nomination of Directors”; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board; • evaluate Board performance and annually review the appropriate skills and characteristics required of Board members in the context of the current make-up or the Board, including such factors as business and professional experience, diversity and personal skills in finance, real estate capital markets, government regulation, financial reporting and other areas that are expected to contribute to an effective Board; • review the effectiveness, structure and operation of committees of the Board and the qualifications of members of the Board committees, and recommend to the Board the directors to serve or be removed as members of each committee and to recommend additional committee members to fill any vacancies; • develop for Board approval a set of corporate governance guidelines applicable to the Company and its subsidiary, periodically review and assess these and their application, and recommend to the Board any changes that the Committee deems appropriate; and • develop for Board approval the Code of Business Conduct and Business Ethics Policy and periodically review and assess the codes and their application, and recommend to the Board any changes that the committee deems appropriate. The members of the Nomination & Governance Committee are Brian Choi (committee chair), Ernest E. Dow, Soo Hun Jung, M.D, Sunny Kwon, Hyung J. Kim, and Yong Sin Shin. The Committee met four times during 2023. 89 E XECUTIVE O FFICERS OF THE C OMPANY The following table sets forth certain information regarding our executive officers, including their names, ages and positions: Name Age Position Min J. Kim 64 President and Chief Executive Officer of the Company and the Bank Christine Y. Oh 56 Executive Vice President and Chief Financial Officer of the Company and the Bank Sang K. Oh 51 Executive Vice President and Chief Credit Officer of the Company and the Bank Ki Won Yoon 63 Executive Vice President and Chief Lending Officer of the Bank Ihnsuk J. Bang 57 Executive Vice President and Chief Banking Officer of the Bank Ryan Shin 50 Executive Vice President and Chief SBA Officer of the Bank Jae H. Park 45 Executive Vice President and Chief Risk Officer of the Bank The business experience of each of our executive officers, other than Ms. Kim, is set forth below. Biographical information for Ms. Kim is included under “The Board of Directors” section above. No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our current directors. There are no arrangements or understandings between any of the officers and any other person pursuant to which he or she was selected as an officer. Christine Y. Oh. Ms. Oh was appointed Executive Vice President and Chief Financial Officer of the Bank in July 2010 and of the Company in March 2016. Ms. Oh has over 32 years of banking experience. Prior to joining the Bank, from January 2010 to July 2010 she served as Interim Chief Financial Officer and Controller of Nara Bank and Nara Bancorp (now Bank of Hope and Hope Bancorp Inc, respectively), headquartered in Los Angeles, California. Prior to assuming those former positions, Ms. Oh served as Senior Vice President and Controller of Nara Bancorp and Nara Bank. Ms. Oh served as Interim Chief Financial Officer of Nara Bancorp and Nara Bank from March 2005 to July 2005. She joined Nara Bank in 1993. Prior to joining Nara Bank, Ms. Oh was a credit analyst at Center Bank where she started her banking career in 1991. Ms. Oh has a Bachelor of Science in Accounting from California State University, Northridge. Sang K. Oh . Mr. Oh has served as Executive Vice President and Chief Credit Officer of the Company and the Bank since October 2020. Mr. Oh has over 26 years of banking experience, all with Bank of Hope, Los Angeles, California. Prior to joining the Bank, he served as Senior Vice President and Senior Credit Administrator at Bank of Hope since 2007, and served in a various senior lending positions with Bank of Hope since 1997. Mr. Oh has a Bachelor of Arts in Business Economics with a Minor in Accounting from the University of California, Los Angeles, and is a graduate of Pacific Coast Banking School. Ki Won Yoon . Ms. Yoon has served as Executive Vice President and Chief Lending Officer since October 2013. Ms. Yoon has over 35 years of relevant lending experience, with strong ties in the Korean-American business community. Prior to joining Open Bank, Ms. Yoon was District Manager at BBCN Bank (now Bank of Hope and Hope Bancorp Inc), which she joined in 1999, and where she managed a loan portfolio of over $450 million. Ms. Yoon has a Bachelor of Arts in Food & Nutrition from Sook Myung Women’s University and is a graduate of Pacific Coast Banking School. Ihnsuk J. Bang . Mr. Bang has served as Executive Vice President and Chief Banking Officer of the Bank since October 2020. Mr. Bang has over 24 years of lending experience. Prior to joining the Bank, he served as President at Hana Small Business Lending, Inc., a nationally ranked, non-bank SBA lender, since 2011, and served in various senior lending positions with Hanmi Bank, Wells Fargo Bank, and Bank of Hope from 1991 through 2003. Mr. Bang has a Bachelor of Arts in Business Economics with Minor in Mathematics from the University of California, Santa Cruz, and a Master’s in Business Administration in Finance from the Marshall School of Business at the University of Southern California. Ryan Shin . Mr. Shin has served as Executive Vice President and Chief SBA Officer of the Bank since February 2022. Mr. Shin has over 24 years of banking experience including 12 years as Senior Vice President & SBA Manager of Open Bank during which he led the Bank’s SBA lending by establishing the department structure and expanding the loan production. Prior to joining the Bank, he served as Senior Vice President & SBA Manager of US Metro Bank, Mirae Bank and Pacific Union Bank. Mr. Shin has a Bachelor of Science in Business Administration with Accounting concentration from California State University, Fullerton. 90 Jae H. Park . Mr. Park joined the Bank as Executive Vice President and Chief Risk Officer in June 2022, bringing with him two decades of banking experience and specialized expertise in regulatory compliance, anti-money laundering/bank secrecy act, Community Reinvestment Act, and risk management. Prior to his current role, Mr. Park served as Executive Vice President and Chief Risk Officer at Sunwest Bank since 2021 and EVP/Chief Compliance Officer at First Choice Bank from 2013 to 2021. He holds a Bachelor of Arts degree in Mathematics from the University of Washington, has completed the Executive Leadership Training from University of Washington Foster School of Business Executive Education, and is a graduate of Pacific Coast Banking School. Mr. Park's professional credentials include Certified Regulatory Compliance Manager (CRCM), Certified Advanced AML Audit Specialist (CAMS-Audit), Certified AML and Fraud Professional (CAFP), and Certified Information Privacy Professional (CIPP/US). C ORPORATE G OVERNANCE AND B OARD M ATTERS The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes-Oxley Act of 2002 and the listing standards of the Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date. Board of Directors Board Independence In 2023, six out of seven members of the Board of Directors were independent directors, as defined by the applicable rules and regulations of the Nasdaq Stock Market, as follows: Brian Choi, Chairman of the Board Ernest E. Dow Soo Hun Jung, M.D. Hyung J. Kim Sunny Kwon Yong Sin Shin Board and Committee Meeting Attendance During the fiscal year ended December 31, 2023, our Board of Directors held a total of thirteen meetings. Each incumbent director who was a director during 2023 attended each such meeting and each meeting held by the standing committees of the Board on which such director served. Director Attendance at Annual Meetings of Shareholders The Board believes it is important for all directors to attend the Annual Meeting of Shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them. The Company’s policy is to encourage, but not require, attendance by each director at the Company’s Annual Meeting of Shareholders. All of the directors of the Company are encouraged to attend the Annual Meeting of Shareholders and at the 2022 Annual Meeting of Shareholders all of our directors were in attendance. Communications with the Board Shareholders may communicate with the Board of Directors, including a committee of the Board or individual directors, by writing to the Corporate Secretary, OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, CA 90017 or delivered via e-mail to christine.oh@myopenbank.com. Each communication from a shareholder should include the following information in order to permit shareholder status to be confirmed and to provide an address to forward a response if deemed appropriate: • if the person submitting the communication is a security holder, a statement of the type and amount of the securities of the Company that the person holds; • if the person submitting the communication is not a security holder and is submitting the communication to the non-management directors as an interested party, the nature of the person’s interest in the Company; 91 • any special interest, meaning an interest not in the capacity of a shareholder of the Company, of the person in the subject matter of the communication; and • the address, telephone number and e-mail address, if any, of the person submitting the communication. Upon receipt, each communication shall be entered into an intake record maintained for this purpose, including the name of the person submitting the communication, the date and time of receipt of the communication, the information concerning the person submitting the communication required to accompany the communication and a brief statement of the subject matter of the communication. The record shall also indicate the action taken with respect to the communication. The Corporate Secretary or her personnel will review all communications to determine whether the communication satisfies the procedural requirements for submission and whether the substance of the communication is of a type that is appropriate for delivery to the Board of Directors under the criteria set forth in our procedures for communications with directors. Communications determined to be appropriate for delivery to directors, shall be assembled and delivered to the directors on a periodic basis. Our procedures regarding the handling of security holder communications were approved by a majority of our independent directors. Nomination of Directors The Company has a Nomination & Governance Committee. The duties of the Nomination & Governance Committee include the recommendation of candidates for election to the Company’s Board of Directors. The Nomination & Governance Committee’s minimum qualifications for a director are persons of high ethical character who have both personal and professional integrity, which is consistent with the image and values of the Company. The Corporate Governance & Nominating Committee considers some or all of the following criteria in considering candidates to serve as directors: • commitment to ethical conduct and personal and professional integrity as evidenced through the person’s business associations, service as a director or executive officer or other commitment to ethical conduct and personal and professional integrity as evidenced organizations and/or education; • objective perspective and mature judgment developed through business experiences and/or educational endeavors; • the candidate’s ability to work with other members of the Board and management to further the Company’s goals and increase shareholder value; • the ability and commitment to devote sufficient time to carry out the duties and responsibilities as a director; • experience at policy making levels in various organizations and in areas that are relevant to the Company’s activities; • the skills and experience of the potential nominee in relation to the capabilities already present on the Board; • broad experience in business, finance or administration, and familiarity with national and international business matters; • familiarity with the commercial banking industry; • prominence and reputation, and ability to enhance the reputation of the Company; • activities and associations of each candidate to ensure that there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on the Board; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board. The Nomination & Governance Committee does not have a separate policy for consideration of any director candidates recommended by shareholders. Instead, the Nomination & Governance Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company’s Bylaws (as well as applicable laws 92 and regulations) in the same manner as any other director candidate. The Nomination & Governance Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company’s Bylaws ensures that the Nomination & Governance Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee. Section 2.4 of the Company’s Bylaws provides that any shareholder must give advance written notice to the Company of an intention to nominate a director at a shareholder meeting. Notice of intention to make any nominations must be made in writing and delivered to the Chief Executive Officer or President at the principal executive offices of the Company no more than 60 days prior to any meeting of shareholders called for the election of directors, and no more than 10 days after the date of notice of such meeting is sent to the shareholders, provided, however, that if only 10 days’ notice of the meeting is given to shareholders such notice of intention to nominate shall be received by the Chief Executive Officer or President of the Company not later than the time fixed in the notice of meeting for the opening of the meeting. Such notification shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares of voting stock of the Company owned by each proposed nominee; (iv) the name and residence address of the notifying shareholder; and (v) the number of shares of voting stock of the Company owned by the notifying shareholder. Nominations not made in accordance with the Bylaws shall be disregarded by the chairman of the meeting, and the inspectors of election shall then disregard all votes cast for each such nominee. Diversity of the Board of Directors In considering diversity of the Board (in all aspects of that term) as a criteria for selecting nominees in accordance with its charter, the Nomination & Governance Committee takes into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Committee seeks persons with leadership experience in a variety of contexts and industries. The Committee believes that this expansive conceptualization of diversity is the most effective means to implement Board diversity. The Nomination & Governance Committee will assess the effectiveness of this approach as part of its annual review of its charter. Term of Office Directors serve for a one-year term or until their successors are elected. The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the best interests of the shareholders and the Company. Board Committees The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. These committees include: Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Each member of these committees is independent, as defined by the applicable rules and regulations of the Nasdaq Stock Market. The committee chair determines the agenda, the frequency and the length of the meetings and receives input from committee members. Executive Sessions Independent directors meet in executive sessions throughout the year including meeting annually to consider and act upon the recommendation of the Human Resource & Compensation Committee regarding the compensation and performance of the Chief Executive Officer. Evaluation of Board Performance A Board assessment is conducted annually in accordance with an established evaluation process and includes performance of committees. The Nomination & Governance Committee oversees this process and reviews the assessment with the full Board. 93 Management Performance and Compensation The Human Resource and Compensation Committee reviews and approves the Chief Executive Officer’s evaluation of the top management team on an annual basis. The Board (largely through the Human Resource & Compensation Committee) evaluates the compensation plans for senior management and other employees to ensure they are appropriate, competitive and properly reflect the Company’s objectives and performance. Code of Business Conduct and Business Ethics Policy Our Board of Directors has adopted a Code of Business Conduct and Business Ethics Policy that applies to all of our directors and employees. The code provides fundamental ethical principles to which these individuals are expected to adhere to and will operate as a tool to help our directors, officers and employees understand the high ethical standards required for employment by, or association with, our Company. This policy governs insider trading, whistleblowing and the protection of whistleblowers, related party transactions, conflicts of interest, and a variety of other requirements applicable to our officers and directors. Our Code of Business Conduct and Business Ethics Policy is available on our website at www.myopenbank.com under the “Investor Relations” tab. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website, as well as any other means required by Nasdaq Stock Market rules. Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters The Company’s Board of Directors has adopted procedures for receiving and responding to complaints or concerns regarding accounting and auditing matters. These procedures were designed to provide a channel of communication for employees and others who have complaints or concerns regarding accounting or auditing matters involving the Company. Employee concerns may be communicated in a confidential or anonymous manner to the Audit Committee of the Board. The Audit Committee Chairman will make a determination on the level of inquiry, investigation or disposal of the complaint. All complaints are discussed with the Company’s senior management and monitored by the Audit Committee for handling, investigation and final disposition. The Chairman of the Audit Committee will report the status and disposition of all complaints to the Board of Directors. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. They are required by SEC rules and regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge based solely on review of the copies of such reports furnished to the Company, all Section 16(a) filing requirements applicable to our executive officers and directors were complied with during the year ended December 31, 2023, with the exception of the following: Name Transaction Date Filed Brian Choi Acquisition of Common Stock Form 4 Filed on 2/8/2023 Min Kim Acquisition of Common Stock Form 4 Filed on 3/23/2023 Ki Won Yoon Acquisition of Common Stock Form 4 Filed on 2/7/2024 94 Item 11. Executive Compensation. The following table sets forth information regarding the compensation paid, awarded to, or earned for our fiscal years ended December 31, 2023 and 2022 for each of our named executive officers. Name and Principal Position Year Salary ($) Stock Awards Non Equity Incentive Plan Compensation (2) Other Compensation (3) ($) Total Compensation ($) Min J. Kim 2023 $ 562,185 $ — $ 557,300 $ 27,778 $ 1,147,263 President and Chief Executive Officer 2022 509,984 — 560,000 20,700 1,090,684 Christine Y. Oh 2023 324,458 97,200 (1) 112,700 21,868 556,226 Executive Vice President and Chief Financial Officer 2022 294,340 129,000 140,000 20,060 583,400 Sang K. Oh 2023 276,317 — 96,300 18,979 391,596 Executive Vice President and Chief Credit Officer 2022 250,673 — 114,000 17,362 382,035 (1) On May 25, 2023, the Company granted 12,000 shares of stock awards to Ms. Oh. The grant date fair value was based on the number of shares granted and the closing price of the Company's stock on the grant date, which was $8.10. (2) Cash bonuses awarded under the Company's Management Incentive Plan, described below. Amounts for 2023 were determined and paid in March 2024. (3) Other Compensation for the named executive officers for our fiscal year ended December 31, 2023 includes the following: Name Perquisites (i) Company 401(k) Match (ii) Total “Other Compensation” Min J. Kim $ 2,400 $ 25,378 $ 27,778 Christine Y. Oh 2,400 19,468 21,868 Sang K. Oh 2,400 16,579 18,979 (i) Amounts reflect cell phone allowance (ii) Amounts reflect Company matching contribution under the 401(k) Plan. General We compensate our named executive officers through a combination of base salary, annual bonuses, equity awards, and other benefits including perquisites. Our Human Resources & Compensation Committee, sometimes referred to as the HRCC, believes the executive compensation packages that we provide to our executives, including the named executive officers, should include both cash and equity compensation that reward performance as measured against established corporate goals. Each element of compensation is designed to achieve a specific purpose and to contribute to a total package that is competitive with similar packages provided by other institutions that compete for the services of individuals like our named executive officers. 2023 Risk Assessment Each year, the Company performs a risk analysis of each of its compensation programs. If warranted, the HRCC will recommend changes to address concerns or considerations raised in the risk review process. Changes may be recommended for the program design or its oversight and administration in order to mitigate unreasonable risk, if any is determined to exist. The HRCC has concluded that the Company’s compensation arrangements do not encourage any employees to take unnecessary or excessive risks. We do not believe that any risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company. Chief Executive Officer Agreement On November 1, 2017, we entered into an employment agreement with Ms. Kim, our President and Chief Executive Officer. The agreement provides for an initial three-year term and thereafter renews annually for a one-year term 95 unless terminated by either party upon 45 days written notice prior to the end of the then-current term. An addendum to this agreement was executed on June 24, 2021, which extended the initial term to December 31, 2024. Under the terms of the agreement, Ms. Kim was initially entitled to an annual base salary of $410,000 subject to annual minimum increases of 3%, the actual amount as determined by the Board of Directors’ annual review of executive salaries. Her salary was last increased to $576,300 in April 2023. In addition to her salary, she is eligible to participate in the annual Management Incentive Plan, and will be entitled to equity award grants in accordance with the Company’s equity incentive plans and as approved by the Board of Directors. The Company provides Ms. Kim, at the same level of cost to other employees, group life, health, accident and disability insurance coverage for herself and her dependents. She is entitled to six weeks paid vacation annually. She received an automobile allowance in the amount of $1,200 per month in 2018 and for the first quarter of 2019. Effective April 2019, the monthly automobile allowance in the amount of $1,200 was rolled into Ms. Kim’s base salary. If Ms. Kim’s employment is terminated without Cause she will be entitled to 175% of her base salary paid over a period of 12 months and the Company will pay her COBRA health insurance premiums for 12 months. If Ms. Kim’s employment is terminated by the Company without Cause or if she resigns for Good Reason (as each such concept is defined in Mr. Kim’s employment agreement) within six months before or two years after a Change in Control, she will be paid 225% of her base salary over 12 months and the Company will pay her COBRA health insurance premiums for 24 months. The agreement provides that if any payments to Ms. Kim are limited by Section 280G of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”), our obligations will be limited to such amounts that results in the greatest amount of the payment that is deductible for federal minimum tax purposes after taking into account all other compensation payments to or for the benefit of Ms. Kim that are included in determining the deductibility of such payments under Section 280G. The agreement contains a non-solicitation provision, whereby Ms. Kim may not solicit the Company’s employees for two years after the termination of her employment. For purposes of Ms. Kim’s contract the following terms are defined as follows: “Cause” means: (i) the willful and continuing failure to perform her obligations to the Company; (ii) the conviction of, or plea of nolo contendere to, a crime of embezzlement or fraud or any felony under the laws of the United States or any state thereof; (iii) the breach of fiduciary responsibility; (iv) an act of dishonesty that is injurious to the Company; (v) engagement in one or more unsafe or unsound banking practices that has an adverse effect on the Company; (vi) removal or permanent suspension from banking pursuant to regulatory and other applicable state or federal laws; (vii) an act or omission that leads to a harm (financial or reputational or otherwise) to the Company; or (viii) a material breach of Company policies as may be in effect from time to time. “ Change in Control ” means the first to occur of (a) the consummation of the acquisition by any “person” (as such term is defined in Section 13(d) or 14(d) of the Exchange Act) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company; or (b) the consummation by the Company of: (i) a merger, consolidation, or similar transaction if the Company’s shareholders immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the entity resulting from such merger, consolidation or similar transaction in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation; or (ii) a complete liquidation or dissolution of, or an agreement for the sale or other disposition of all or substantially all of the assets of, the Company (including a transaction described in clause (a) or (b) as if applicable to the Bank or a sale of substantially all of the Bank’s assets). Notwithstanding any provision of this definition to the contrary, a Change in Control shall not be deemed to have occurred solely because more than fifty percent (50%) of the combined voting power of the then outstanding securities of the Company are acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or an affiliate thereof or (ii) any corporation that, immediately prior to such acquisition, is owned directly or indirectly by the Company’s shareholders in the same proportion as their ownership of “Voting Securities” immediately prior to such acquisition. Further, notwithstanding any provision of this definition to the contrary, in the event that any amount or benefit under the agreement constitutes deferred compensation under the Section 409A of the Internal Revenue Code and the settlement of or distribution of such amount or benefit is to be triggered by a change in control, then such settlement or distribution shall be subject to the event constituting the change in control also constituting a “change in control event” (as defined in Section 409A). “ Good Reason ” means the occurrence of any one of the following events, unless Ms. Kim agrees in writing that such event shall not constitute “Good Reason”: (i) a material, adverse change in the nature, scope, or status of Ms. Kim’s position, authorities, or duties from those in effect immediately prior to the applicable change in control; (ii) a material reduction in her aggregate compensation or benefits in effect immediately prior to the applicable Change in Control; or (iii) 96 a relocation of Ms. Kim’s primary place of employment of more than fifty (50) miles from the her primary place of employment immediately prior to the applicable Change in Control. Prior to the Ms. Kim’s termination of service for Good Reason, Ms. Kim must give the Company written notice of the existence of the condition that gives rise to an event of a Good Reason within 90 days of its occurrence and then the Company has 30 days to cure the situation. Management Incentive Plan The Company offers eligible executives an opportunity to earn cash bonuses in addition to their annual base salaries. Each year the management incentive plan (“Management Incentive Plan”) is reviewed and approved by the HRCC. The Management Incentive Plan for 2023 and 2022 provides an opportunity for the executive officers and key employees to earn a bonus up to their designated percentage cap based on their base salary. The limits for the Management Incentive Plan for 2023 and 2022 were up to 100% and 110% of the annual base salary respectively for the President and Chief Executive Officer and up to 35% and 45% of their annual base salary respectively for the other executive officers. Specific bonuses payouts are recommended by the President and Chief Executive Officer to the HRCC. The HRCC reviews the recommendations and based on its evaluation, recommends the final bonus amounts paid. In addition, the Board has the discretion to approve any additional cash bonuses or adjustments to the accrual and/or distribution under the Management Incentive Plan as they deem appropriate and in line with the profits and the growth of the Company. However, no eligible executive would receive a bonus if he or she achieved less than 80% of performance goals set forth in the Management Incentive Plan for 2023 and 70% in 2022, and/or the return on assets (“ROA”) for the Plan Year is less than 1%. The availability of bonuses and the amounts earned is based on various metrics approved by the HRCC. These metrics may change from year to year. For 2023, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.17%, return on equity (“ROE”) of 13.52% and an efficiency ratio of 56.64%. The Individual Goals were customized to each individual’s respective responsibilities. For the President and Chief Executive Officer, the weight allocation was 70% in Bank Goals and 30% in Individual Goals. For the other executive officers, the weight allocation was 60% in Bank Goals and 40% in Individual Goals. In 2023, our ROA was 1.13%, ROE was 13.05%, and the efficiency ratio was 57.59%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $557,300, equal to 97% of her annual base salary for 2023, Ms. Oh should receive $112,700, equal to 34% of her annual base salary for 2023 and Mr. Oh should receive $96,300, equal to 34% of his annual base salary for 2023. For 2022, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.70%, return on equity (“ROE”) of 18.00% and an efficiency ratio of 46.00%. The Individual Goals were customized to each individual’s respective responsibilities. For the President and Chief Executive Officer and the other executive officers the weight allocation was 70% in Bank Goals and 30% in Individual Goals. In 2022, our ROA was 1.73%, ROE was 19.47%, and the efficiency ratio was 47.40%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $560,000, equal to 107% of her annual base salary for 2022, Ms. Oh should receive $140,000, equal to 46% of her annual base salary for 2022 and Mr. Oh should receive $114,000, equal to 44% of his annual base salary for 2022. Benefits and Other Perquisites The named executive officers are eligible to participate in the same benefit plans designed for all of our full-time employees, including health, dental, vision, disability and basic group life insurance coverage. We also provide our employees, including our named executive officers, with various retirement benefits. Our retirement plans are designed to assist our employees in planning for retirement and securing appropriate levels of income during retirement. The purpose of our retirement plans is to attract and retain quality employees, including executives, by offering benefit plans similar to those typically offered by our competitors. Open Bank Employee’s 401(k) Plan . The Open Bank Employee’s 401(k) Plan is designed to provide retirement benefits to all eligible full-time and part-time employees of the Company and its subsidiary. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax-favored basis. Named executive officers, all of whom were eligible during 2023, may elect to participate in the 401(k) Plan on the same basis as all other employees. Employees may defer 1% to 100% of their compensation to the 401(k) Plan up to the applicable IRS limit. We currently match employee contributions on the first 6% of employee compensation ($1 for each $1). The Company match is contributed in the form of 97 cash and is invested according to the employee’s current investment allocation. No discretionary profit sharing contribution was made to the 401(k) Plan for 2023 or 2022. Company Owned Life Insurance or COLI Policies . In 2014, the Company purchased single premium COLI Policies for certain executives and senior officers of the Company and to use the income from the COLI Policies to offset benefit expenses. Further, the Company benefits from any future death benefits paid out under these COLI Policies. The Company entered into arrangements with certain executive and senior officers to pay their beneficiaries a death benefit. The amount of the arrangement for executive officers was equal to 20% of the net amount of insurance, and for senior officers between 10% and 15% of the net amount of insurance. If the officer or director retires or is terminated, the arrangement terminates. Health and Welfare Benefits . Our named executive officers are eligible to participate in our standard health and welfare benefits program, which offers medical, dental, vision, life, accident, and disability coverage to all of our eligible employees. We do not provide the named executive officers with any health and welfare benefits that are not generally available to our other employees. Perquisites . We provide our named executive officers with certain perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The HRCC periodically reviews the levels of perquisites and other personal benefits provided to named executive officers. Based on this periodic review, perquisites are awarded or adjusted on an individual basis. The perquisites received by our named executive officers in 2023 included a cell phone allowance. Executive Change in Control Plan In connection with our initial public offering, our Board of Directors adopted an Executive Change in Control Plan, or Severance Plan. Participants in the Severance Plan are selected by the HRCC and the Board of Directors. Our Chief Executive Officer is not eligible to participate in the Severance Plan. If a participant in the Severance Plan is terminated without cause or resigns for a “good reason” within a determined period of time before or following a “change in control”, the participant will be paid an individually determined severance amount and benefits. Upon termination of the participant’s employment in a manner that results in severance to the participant under the Severance Plan, the participant agrees not to solicit employees and not solicit customers to terminate their relationships with the Company for a period of one year. Ms. Christine Oh is a participant in the Severance Plan. If she is terminated without cause within six months before or 12 months after a change in control (the “change in control period”) or she resigns for good reason during the change in control period, she would be entitled to 150% her base salary and the Company will pay her COBRA health insurance premiums for 12 months. The terms “cause,” “change in control” and “good reason” have substantially the same meanings as provided in Ms. Min J. Kim’s employment agreement, as described above. Equity Based Plans 2021 Equity Incentive Plan On June 24, 2021, the shareholders of Open Bank approved the 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to advance the interest of the Company and its shareholders by providing an incentive to attract, retain and reward key employees, officers, and non-employee directors of the Company and the Bank. The 2021 Plan authorized up to 1,500,000 shares of the Company's common stock for issuance of equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2022, 317,366 restricted stock units at an average issue price of $11.60 were outstanding. There were no stock options granted under the 2022 Plan. As of December 31, 2022, 1,130,583 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan. The 2021 Plan authorized up to 1,500,000 shares of the Company's common stock for issuance of equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock 98 as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2023, 278,851 restricted stock units at an average issue price of $ 11.45 were outstanding. There were no stock options granted under the 2021 Plan. As of December 31, 2023, 1,111,457 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan. 2010 Equity Incentive Plan On August 19, 2010, the shareholders of Open Bank approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was amended by the Board and shareholders of Open Bank in 2013 to increase the number of authorized shares for issuance from 1,350,000 shares to 2,500,000 shares of common stock. In June 2016, OP Bancorp assumed the 2010 Plan in connection with the formation of the bank holding company. The shares of common stock are authorized and reserved for issuance for equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2023, we had options outstanding to purchase a total of 60,000 shares of our common stock under the 2010 Plan, at an average exercise price of $ 8.00 per share, and 10,000 restricted stock units at an average issue price of $ 9.69 were outstanding. The 2010 Plan expired in August 2020 and no future grants can be made under the 2010 Plan. Outstanding Equity Awards The following table provides information for each of our named executive officers regarding outstanding stock awards held by the officers as of December 31, 2023. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) (1) Market Value of Shares or Units of Stock That Have Not Vested ($) (2) Min J. Kim 60,000 — $ 8.00 4/1/2024 21,407 $ 234,407 Christine Y. Oh — — — — 22,000 240,900 Sang K. Oh — — — — 27,000 295,650 (1) This column represents the unvested restricted stock units granted. With regard to 21,407 restricted stock units for Ms. Kim, 64,219 restricted stock units vest 1/3rd per year from the date of grant of June 24, 2021, subject to continuing service. With regard to 20,000 restricted stock units for Ms. Oh, 10,000 restricted stock units vest at the end of three years from the date of grant of February 24, 2022, subject to continuing service and 10,000 restricted stock units vest 1/3rd per year from the date of grant of May 25, 2023. (2) The market value of the shares of restricted stock units that have not vested is calculated by multiplying the number of shares of stock underlying the restricted stock units that have not vested by the closing price of our common stock as of December 31, 2023, which was $10.95. Director Compensation The following table sets forth compensation paid or awarded to, or earned by, each of our directors (except for Min J. Kim, whose compensation is disclosed under “—Summary Compensation Table”) during 2023. Officers do not earn additional compensation for director service. Name Fees Earned or Paid in Cash ($) (1) Stock Awards ($) (2)(3) Total Brian Choi $ 84,000 $ 42,000 $ 126,000 Ernest E. Dow 60,000 29,996 89,996 Soo Hun Jung, M.D. 60,000 29,996 89,996 Hyung J. Kim 35,000 29,996 64,996 Sunny Kwon 35,000 29,996 64,996 Yong Sin Shin 60,000 29,996 89,996 99 (1) Excludes reimbursement for traveling and other expenses and stock-based expenses relating to equity awards granted in prior years under our equity plans. (2) On June 22, 2023, the Company granted an aggregate 23,047 shares of stock awards to directors (excluding Ms. Kim). The grant date fair value was based on the number of shares granted and the closing price of the Company's stock on the grant date, which was $8.33. (3) The following table presents the number of shares underlying unvested stock awards held by each of our directors as of December 31, 2023. Name Number of Shares Underlying Unvested Stock Awards Brian Choi 5,042 Ernest E. Dow 3,601 Soo Hun Jung, M.D. 3,601 Hyung J. Kim 3,601 Sunny Kwon 3,601 Yong Sin Shin 3,601 The Company paid fees to the non-officer directors for attendance at Board of Directors and Board of Directors’ committee meetings or for performing other services in connection with operation of the Company. The Chairman of the Board received $7,000 per month and all other directors received $5,000 per month. Directors receive reimbursement for their out-of-pocket expenses incurred in connection with their duties as directors, including their attendance at director meetings. Compensation Committee Interlocks and Insider Participation None of the members of our Human Resources & Compensation Committee will be or will have been one of our officers or employees. In addition, none of our executive officers serves or has served as a member of the compensation committee or other Board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Human Resources & Compensation Committee. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Beneficial Ownership of Common Stock The following table sets forth information as of March 1, 2024, pertaining to beneficial ownership of the Company’s common stock by persons known to the Company to own 5% or more of the Company’s common stock, nominees to be elected to the Board of Directors, the executive officers named in the Summary Compensation Table presented in this proxy statement, and all directors and executive officers of the Company, as a group. This information has been obtained from the Company’s records, or from information furnished directly by the individual or entity to the Company. For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of March 1, 2024, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals. 100 Name of Beneficial Owner (1) Shares Beneficially Owned (2) (3) Percent of Class (3) Directors and Executive Officers: Brian Choi 1,298,520 8.67 % Ernest E. Dow 247,513 1.65 % Soo Hun Jung, M.D. 238,387 1.59 % Hyung J. Kim — — % Sunny Kwon — — % Yong Sin Shin 490,435 3.27 % Min J. Kim 627,648 (4) 4.17 % Christine Y. Oh 127,778 0.85 % Sang K. Oh 18,000 0.12 % All directors and executive officers as a group (13 individuals) 3,154,227 (5) 20.94 % Manulife Financial Corporation 887,695 (6) 5.93 % AllianceBernstein L.P. 807,646 (7) 5.39 % (1) Except as otherwise noted, the address for all persons is c/o OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, California 90017. (2) Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. (3) Includes shares beneficially owned (including options exercisable and restricted stock units vesting within 60 days of March 1, 2024). (4) Consists of 567,648 shares held by Ms. Kim individually and 60,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of March 1, 2024. (5) Includes 60,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of March 1, 2024. (6) Represents the number of common shares beneficially owned by Manulife Financial Corporation (“MFC”) and MFC’s indirect, wholly-owned subsidiaries, Manulife Investments (US) LLC (“MIM (US)”) and Manulife Investment Management Limited (“MIML”). The address of MFC and MIMIL is 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and the address of MIM (US) is 197 Clarendon Street, Boston, Massachusetts 02116. The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2022. (7) Represents the number of common shares beneficially owned by AllianceBernstein L.P. The address of AllianceBernstein L.P. is 501 Commerce Street, Nashville, TN 37203. The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2024. The following table summarizes our equity compensation plans as of December 31, 2023: Securities Authorized for Issuance Under Equity Compensation Plans Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in Column (a) (c) Equity compensation plans approved by security holders 348,851 $ 10.81 1,111,457 Equity compensation plans not approved by security holders — — — Total 348,851 $ 10.81 1,111,457 101 Item 13. Certain Relationships and Related Transactions, and Director Independence. Policy and Procedures Regarding Related Party Transactions Our Board of Directors has adopted a written Statement of Policy with Respect to Related Party Transactions. Under this policy, any “related party transaction” may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party. For purposes of this policy, a “related person” means: (i) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; (ii) any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, principal or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. A “related party transaction” is a transaction in which the Company or its subsidiary is a participant and in which a related person had or will have a direct or indirect interest, other than transactions involving: (i) less than $5,000 when aggregated with all similar transactions; (ii) customary bank deposits and accounts (including certificates of deposit); and (iii) loans and commitments to lend included in such transactions that are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features to the Company. A related party who has a position or relationship with a firm, corporation, or other entity that engaged in a transaction with the Company shall not be deemed to have an indirect material interest within the meaning of this policy where the interest in the transaction arises only: (i) from such related party’s position as a director of another corporation or organization that is party to the transaction; (ii) from the direct or indirect ownership by the related party of less than a 10% equity interest in another person (other than a partnership) which is a party to the transaction; or (iii) from the related party’s position as a limited partner in a partnership in which the related party has an interest of less than 10%, and the related party is not a general partner of and does not hold another position in the partnership. The Board of Directors has determined that the Audit Committee is best suited to review and approve related party transactions. The Committee considers all of the relevant facts and circumstances available to the Committee, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee may participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Committee will approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Committee determines in good faith. The Audit Committee will convey its decision to the Board of Directors. The Chief Executive Officer will convey the decision to the appropriate persons within the Company Ordinary Banking Relationships Certain of our officers, directors and principal shareholders, as well as their immediate family members and affiliates, are customers of, or have or have had transactions with us in the ordinary course of business. These transactions include deposits, loans and other financial services related transactions. Related party transactions are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to us, and do not involve more than normal risk of collectability or present other features unfavorable to us. Any loans we originate with officers, directors and principal shareholders, as well as their immediate family members and affiliates, are approved by our Board of Directors in accordance with the bank regulatory requirements As of December 31, 2023, our officers and directors as well as their immediate families and affiliated companies, taken as a group, were not indebted directly or indirectly to us, while deposits from this group totaled $ 1.8 million as of 102 such date. We expect to continue to enter into transactions in the ordinary course of business on similar terms with our officers, directors and principal shareholders, as well as their immediate family members and affiliates. Open Stewardship Foundation In 2011, the Open Stewardship Foundation, a non-profit organization, was created to actively support civic organizations, schools and other eligible charitable non-profit organizations that provide public benefit services in the communities we serve. We have committed to fund the Foundation in an amount equal to 10% of our consolidated annual income after taxes each year. We also permit the Foundation to use our premises for activities on behalf of non-profit organizations. This commitment is included in our annual operating budget each year and the Board of Directors and management believe that such activities have benefited us through stronger and expanded business relationships within the Korean-American community. Since inception, we have donated over $15.6 million to the Foundation, aiding over 228 local non-profits. The Foundation’s Board of Directors is comprised of five of our directors, Brian Choi, Ernest E. Dow, Min J. Kim, Soo Hun Jung, and Yong Sin Shin. Our Chief Financial Officer serves as the president of the Foundation. Our directors and officers receive no additional compensation for their service at the Foundation. The Board of Directors of the Foundation maintains a selection committee that is responsible for reviewing and recommending grant applications from local nonprofits. The selection committee has four members annually selected by the Foundation Board of Directors. We do not control the Foundation’s activities, and accordingly, we do not consolidate the financial statements of the Foundation. Other Related Party Transactions Other than the compensation arrangements with directors and executive officers described in “Executive Compensation” and the ordinary banking relationships described above, none of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or their immediate family members or entities affiliated with them, had or will have a direct or indirect material interest, in any transactions to which we have been a party. Insider Trading and Code of Business Conduct and Ethics The Company’s Code of Business Conduct and Ethics Policy is intended to promote compliance with all applicable laws and regulations and to require of the Company’s officers and directors the appropriate standards of good judgment and high ethical standards that our shareholders and customers have a right to expect. This policy governs insider trading, whistleblowing and the protection of whistleblowers, related party transactions, conflicts of interest, and a variety of other requirements applicable to our officers and directors. A copy of the Company’s Code of Business Conduct and Ethics is available under the Corporate Governance tab on the Company’s investor relations website, https://opbancorp.q4ir.com/governance/corporate-governance/default.aspx. Director Independence In 2023, six out of seven members of the Board of Directors were independent directors, as defined by the applicable rules and regulations of the Nasdaq Stock Market, as follows: Brian Choi, Chairman of the Board Ernest E. Dow Soo Hun Jung, M.D. Hyung J. Kim Sunny Kwon Yong Sin Shin 103 Item 14. Principal Accountant Fees and Services. The following table summarizes the aggregate fees billed to the Company by its independent auditor: Category of Services Fiscal Year 2023 Fiscal Year 2022 Audit fees (1) $ 597,795 $ 524,000 Audit-related fees — — Tax fees (2) 57,008 61,172 All other fees — — Total accounting fees $ 654,803 $ 585,172 (1) Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements, quarterly review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and audit services provided in connection with other statutory and regulatory filings. (2) Tax fees were related to tax services provided to Company, including annual Federal and State tax return, quarterly tax estimates, and any assistance, review, or resolution of tax notice. The ratio of Tax fees and All other fees to Total accounting fees was 8.7% for 2023 and 10.5% for 2022. In considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board. 104 PART IV Item 15. Exhibits and Financial Statement Schedules. (a)(1) Financial Statements : The financial statements listed under Part II-Item 8. “Financial Statements and Supplementary Data” are filed as part of this Item 15 of this 10-K. (a)(2) Financial Statement Schedules : All financial statement schedules have been omitted as such required information is not applicable or has been included in the Financial Statements and related notes. (a)(3) List of Exhibits : The exhibits required by Item 601 of Regulation S-K are included under Item 15(b) below. (b) Exhibits Exhibit Number Description 3.1 Articles of Incorporation of OP Bancorp (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.2 Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.3 First Amendment to the Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 15, 2021) 4.1 Specimen common stock certificate of OP Bancorp (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 4.2 Description of Securities Registered under Section 12 of Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 16, 2020) 10.1* Employment Agreement, dated November 1, 2017, between OP Bancorp and Min J. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.2* Employment Offer Letter, dated June 10, 2010, from First Standard Bank to Christine Oh (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.3* Employment Offer Letter, dated September 9, 2013, from First Standard Bank to Ki Won Yoon (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.4* 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.5* First Amendment to the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.6* Form of Stock Option Award under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.7* Form of Restricted Stock Unit Agreement under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.8* OP Bancorp 2017 Management Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.9* OP Bancorp Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.10* Form of Indemnification Agreement entered into with all of the directors and executive officers of OP Bancorp (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 105 10.11 Coexistence Agreement with Open Bank S.A. (incorporated herein by reference to Exhibit 10.15 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.12* Employment Offer Letter, dated September 24, 2020, from Open Bank to Sang Kyo Oh (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on October 1, 2020) 10.13* Employment Offer Letter, dated September 18, 2020, from Open Bank to Ihnsuk J. Bang (incorporated herein by reference to Exhibit 10.17 to the R egis t rant's Annual Report on Form 10-K (File No. 001-38437) filed on March 18, 2022). 10.14* Addendum to Employee Agreement, dated June 24, 2021, between OP Bancorp, Open Bank and Min J. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on June 25, 2021) 10.15* 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.6 to the Registrant’s Form S-8 Registration Statement (Registration No. 333-257362) filed on June 24, 2021 10.16* Form of Restricted Stock Unit Agreement under the OP Bancorp 2021 Equity Incentive Pla n (incorporated herein by reference to Exhibit 10.20 to the R egis trant's Annual Report on Form 10-K (File No . 001-38437) filed on March 28, 2022). 21.1 Subsidiaries of OP Bancorp (incorporated herein by reference to Exhibit 21.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 23.1 Consent of Crowe LLP, filed herewith. 24.1 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 , filed herewith. 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 OP Bancorp Incentive Compensation Recovery Policy, filed herewith. 101.INS Inline XBRL Instance Document, filed herewith. 101.SCH Inline XBRL Taxonomy Extension Schema Document, filed herewith. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document, filed herewith. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) * Indicates management contract or compensatory plan or arrangement. ** Furnished, not filed. Item 16. Form 10-K Summary. None. 106 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . OP Bancorp Date: March 29, 2024 By: /s/ MIN J. KIM Min J. Kim President and Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints each of Min J. Kim and Christine Y. Oh, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature/Name Title Date /s/ MIN J. KIM President, Chief Executive Officer and Director (Principal Executive Officer) March 29, 2024 Min J. Kim /s/ CHRISTINE Y. OH Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) March 29, 2024 Christine Y. Oh /s/ BRIAN CHOI Director March 29, 2024 Brian Choi /s/ ERNEST E. DOW Director March 29, 2024 Ernest E. Dow /s/ SOO HUN JUNG Director March 29, 2024 Soo Hun Jung /s/ HYUNG J. KIM Director March 29, 2024 Hyung J. Kim /s/ SUNNY KWON Director March 29, 2024 Sunny Kwon /s/ YONG SIN SHIN Director March 29, 2024 Yong Sin Shin 107 Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173 ) F- 1 Consolidated Balance Sheets a s of December 31, 202 3 and 202 2 F- 3 Consolidated Statements of Income for the Years Ended December 31, 202 3 , 202 2 and 202 1 F- 4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021 F- 5 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021 F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 F- 7 Notes to Consolidated Financial Statements F- 9 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of OP Bancorp Los Angeles, California Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of OP Bancorp (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codifications No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses – Loans As described in Notes 1 and 3 to the financial statements, effective January 1, 2023 the Company adopted ASU 2016-13, Financial instruments – Credit Losses (Topic 326) using the modified retrospective method. See change in accounting principle explanatory paragraph above. The allowance for credit losses on loans is an estimate of expected credit losses, measured over the contractual life of the loans based on historical experience, current conditions, and reasonable and supportable forecasts. As of January 1, 2023, the Company recorded a $1.9 million increase to the allowance for credit losses (ACL) on loans and a $1.5 million decrease to retained earnings. At December 31, 2023 the Company had a gross loan portfolio of $1.8 billion and a related ACL on loans of $22.0 million. F-1 The Company uses a probability of default (PD)/loss given default (LGD) quantitative model using transition matrices and a qualitative framework to estimate expected credit losses on loans held for investment. The quantitative component of the model provides forecasts of PD and LGD based on forecasted national unemployment rates using regression analysis and under a weighted multiple scenario approach. The Company’s qualitative framework is designed to quantify the credit risk impact of other trends and changes within the loan portfolio. The parameters for making adjustments are established under a credit risk matrix that provides different possible scenarios for the qualitative factor adjustments. We identified auditing the qualitative factor adjustments to the allowance for credit losses on loans to be a critical audit matter as it involved significant audit effort and especially subjective auditor judgment to evaluate the subjective judgment made by management related to the determination of qualitative factor adjustments, including the development of the qualitative framework. The primary procedures we performed to address this critical audit matter included: • Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the qualitative factor adjustments, which included: ◦ Evaluating the appropriateness of the qualitative framework and the reasonableness of significant assumptions used in the development of qualitative factor adjustments. ◦ Evaluating the relevance and reliability of internal and external data used to develop the qualitative factor adjustments. ◦ Evaluating the mathematical accuracy of qualitative factor adjustments derived from management’s credit risk matrix. Crowe LLP We have served as the Company's auditor since 2010. Costa Mesa, California March 29, 2024 F-2 OP BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, ($ in thousands) 2023 2022 ASSETS Cash and cash equivalents $ 91,216 $ 82,972 Available-for-sale debt securities, at fair value 194,250 209,809 Other investments 16,276 12,098 Loans held for sale 1,795 44,335 Loans receivable, net of allowance for credit losses of $ 21,993 and $ 19,241 as of December 31, 2023 and 2022, respectively 1,743,852 1,659,051 Premises and equipment, net 5,248 4,400 Accrued interest receivable 8,259 7,180 Servicing assets 11,741 12,759 Company owned life insurance 22,233 21,613 Deferred tax assets, net 13,309 14,316 Operating right-of-use assets 8,497 9,097 Other assets 31,054 16,867 Total assets $ 2,147,730 $ 2,094,497 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits: Noninterest-bearing $ 522,751 $ 701,584 Interest-bearing: Money market and others 399,018 526,321 Time deposits greater than $250 433,892 356,197 Other time deposits 451,897 301,669 Total deposits 1,807,558 1,885,771 Federal Home Loan Bank advances 105,000 — Accrued interest payable 12,628 2,771 Operating lease liabilities 9,341 10,213 Other liabilities 20,577 18,826 Total liabilities 1,955,104 1,917,581 Shareholders’ equity Preferred stock no par value; 10,000,000 shares authorized; no shares issued or outstanding as of December 31 2023 and 2022 — — Common stock – no par value; 50,000,000 shares authorized as of December 31, 2023 and 2022; 15,000,436 and 15,270,344 shares issued and outstanding as of December 31, 2023 and 2022, respectively 76,280 79,326 Additional paid-in capital 10,942 9,743 Retained earnings 120,855 105,690 Accumulated other comprehensive loss ( 15,451 ) ( 17,843 ) Total shareholders’ equity 192,626 176,916 Total liabilities and shareholders' equity $ 2,147,730 $ 2,094,497 See accompanying notes to consolidated financial statements F-3 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, ($ in thousands, except per share data) 2023 2022 2021 INTEREST INCOME Interest and fees on loans $ 110,463 $ 82,864 $ 62,448 Interest on available-for-sale debt securities 6,131 3,351 1,085 Other interest income 5,071 1,997 625 Total interest income 121,665 88,212 64,158 Interest expense Interest on deposits 49,435 11,210 3,132 Interest on borrowings 3,543 91 — Total interest expense 52,978 11,301 3,132 Net interest income 68,687 76,911 61,026 Provision for credit losses 1,651 2,976 522 Net interest income after provision for credit losses 67,036 73,935 60,504 NONINTEREST INCOME Service charges on deposits 2,123 1,675 1,562 Loan servicing fees, net of amortization 2,449 2,416 1,953 Gain on sale of loans 7,843 12,285 11,313 Other income 1,766 1,243 1,189 Total noninterest income 14,181 17,619 16,017 NONINTEREST EXPENSE Salaries and employee benefits 29,593 27,189 21,253 Occupancy and equipment 6,490 5,964 5,213 Data processing and communication 2,109 2,085 2,000 Professional fees 1,571 1,620 1,192 FDIC insurance and regulatory assessments 1,457 813 583 Promotion and advertising 614 543 684 Directors’ fees 680 682 593 Foundation donation and other contributions 2,400 3,393 2,890 Other expenses 2,812 2,541 1,457 Total noninterest expense 47,726 44,830 35,865 INCOME BEFORE INCOME TAX EXPENSE 33,491 46,724 40,656 Income tax expense 9,573 13,414 11,816 NET INCOME $ 23,918 $ 33,310 $ 28,840 EARNINGS PER SHARE - BASIC $ 1.55 $ 2.15 $ 1.89 EARNINGS PER SHARE - DILUTED $ 1.55 $ 2.14 $ 1.88 See accompanying notes to consolidated financial statements F-4 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, ($ in thousands) 2023 2022 2021 Net income $ 23,918 $ 33,310 $ 28,840 Other comprehensive income (loss) Change in unrealized gain (loss) on available-for-sale debt securities 3,397 ( 23,634 ) ( 2,891 ) Tax effect ( 1,005 ) 6,988 854 Total other comprehensive income (loss) 2,392 ( 16,646 ) ( 2,037 ) Comprehensive income $ 26,310 $ 16,664 $ 26,803 See accompanying notes to consolidated financial statements F-5 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ($ in thousands, except per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Outstanding Amount Balance as of January 1, 2021 15,016,700 $ 78,657 $ 8,521 $ 55,348 $ 840 $ 143,366 Net income — — — 28,840 — 28,840 Other comprehensive loss — — — — ( 2,037 ) ( 2,037 ) Stock issued under stock-based compensation plans, net of forfeitures 124,938 89 — — — 89 Stock-based compensation, net — — 124 — — 124 Repurchase of common stock ( 3,830 ) ( 28 ) — — — ( 28 ) Cash dividends declared ($ 0.34 per share) — — — ( 5,132 ) — ( 5,132 ) Balance as of December 31, 2021 15,137,808 78,718 8,645 79,056 ( 1,197 ) 165,222 Net income — — — 33,310 — 33,310 Other comprehensive loss — — — — ( 16,646 ) ( 16,646 ) Stock issued under stock-based compensation plans, net of forfeitures 132,536 608 ( 81 ) — — 527 Stock-based compensation, net — — 1,179 — — 1,179 Cash dividends declared ($ 0.44 per share) — — — ( 6,676 ) — ( 6,676 ) Balance as of December 31, 2022 15,270,344 79,326 9,743 105,690 ( 17,843 ) 176,916 Cumulative effect related to adoption of ASC 326, net of tax — — — ( 1,484 ) — Adjusted balance as of January 1, 2023 15,270,344 79,326 9,743 104,206 ( 17,843 ) 175,432 Net income — — — 23,918 — 23,918 Other comprehensive income — — — — 2,392 2,392 Stock issued under stock-based compensation plans, net of forfeitures 178,576 888 ( 98 ) — — 790 Stock-based compensation, net — — 1,297 — — 1,297 Repurchase of common stock ( 448,484 ) ( 3,934 ) — — — ( 3,934 ) Cash dividends declared ($ 0.48 per share) — — — ( 7,269 ) — ( 7,269 ) Balance as of December 31, 2023 15,000,436 $ 76,280 $ 10,942 $ 120,855 $ ( 15,451 ) $ 192,626 See accompanying notes to consolidated financial statements F-6 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ in thousands) 2023 2022 2021 Cash flows from operating activities Net income $ 23,918 $ 33,310 $ 28,840 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Provision for credit losses 1,651 2,976 522 Depreciation and amortization of premises and equipment 1,336 1,367 1,314 Amortization of net premiums on securities 235 629 882 Amortization of servicing assets 4,418 4,385 3,536 Accretion of net discounts on loans ( 2,840 ) ( 4,868 ) ( 4,847 ) Amortization of low income housing partnerships 1,325 697 522 Stock-based compensation 1,297 1,179 558 Deferred income taxes 626 1,081 ( 2,312 ) Gain on sale of loans ( 7,843 ) ( 12,285 ) ( 11,313 ) Earnings on company owned life insurance ( 620 ) ( 479 ) ( 255 ) Net change in fair value of equity investment with readily determinable fair value ( 48 ) 431 108 Origination of loans held for sale ( 107,610 ) ( 137,642 ) ( 177,042 ) Proceeds from sales of loans held for sale 154,593 196,531 122,520 Net change in: Accrued interest receivable ( 1,079 ) ( 2,396 ) 242 Other assets ( 7,543 ) 269 5,793 Accrued interest payable 9,857 2,213 ( 463 ) Other liabilities ( 3,831 ) ( 3,664 ) 3,117 Net cash provided by operating activities 67,842 83,734 ( 28,278 ) Cash flows from investing activities Net change in loans receivable ( 57,932 ) ( 138,998 ) ( 123,069 ) Proceeds from matured, called, or paid-down securities available for sale 24,368 32,191 35,941 Purchase of company owned life insurance — ( 10,000 ) — Purchase of loans ( 27,604 ) ( 225,133 ) ( 97,631 ) Purchase of available-for-sale debt securities ( 5,647 ) ( 115,819 ) ( 98,368 ) Purchase of equity investments ( 85 ) ( 53 ) — Purchase of Federal Home Loan Bank stock ( 4,045 ) ( 1,477 ) ( 963 ) Purchase of premises and equipment, net ( 2,184 ) ( 1,412 ) ( 1,125 ) Investment in low income housing partnerships ( 2,843 ) ( 1,076 ) ( 829 ) Net cash used in investing activities ( 75,972 ) ( 461,777 ) ( 286,044 ) Cash flows from financing activities Net change in deposits ( 78,213 ) 351,705 333,976 Cash received from stock option exercises 888 608 89 Proceeds from Federal Home Loan Bank advances 105,000 — — Repayment of Federal Home Loan Bank advances — — ( 5,000 ) Repurchase of common stock ( 3,934 ) — ( 28 ) Cash dividend paid on common stock ( 7,269 ) ( 6,676 ) ( 5,132 ) F-7 Payments related to tax-withholding for vested restricted stock awards ( 98 ) ( 81 ) ( 434 ) Net cash provided by financing activities 16,374 345,556 323,471 Net change in cash and cash equivalents 8,244 ( 32,487 ) 9,149 Cash and cash equivalents at beginning of period 82,972 115,459 106,310 Cash and cash equivalents at end of period $ 91,216 $ 82,972 $ 115,459 Supplemental cash flow information: Cash paid during the period for Income taxes $ 8,393 $ 14,493 $ 10,778 Interest 43,121 9,088 3,595 Supplemental non-cash disclosure: Initial recognition of right-of-use assets $ 1,369 $ 1,961 $ 3,708 New commitments to low income housing partnership investments 6,000 5,000 3,500 See accompanying notes to consolidated financial statements F-8 OP BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Basis of Presentation Business Description: OP Bancorp is a California corporation that was formed to acquire 100.00 % of the voting equity of Open Bank (the “Bank”) and commenced operation as a bank holding company on June 1, 2016. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of OP Bancorp. OP Bancorp has no operations other than ownership of the Bank. The Bank is a California state-chartered and FDIC-insured financial institution, which began its operations on June 10, 2005. Headquartered in downtown Los Angeles, California, OP Bancorp operates primarily in the traditional banking business arena that includes accepting deposits and making loans and investments. OP Bancorp’s primary deposit products are demand and time deposits, and the primary lending products are commercial business loans to small to medium sized businesses. OP Bancorp is operating with 11 full-service branches. Basis of Presentation: The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Concentration of Risk: Most of the Company’s customers are located within Los Angeles County and the surrounding area. The concentration of loans originated in this area may subject the Company to the risk of adverse impacts of economic, regulatory or other developments that could occur in Southern California. The Company has significant concentration in commercial real estate loans. The Company obtains what it believes to be sufficient collateral to secure potential losses. The extent and value of the collateral obtained varies based upon the details underlying each loan agreement. Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Securities available for sale are measured at fair value and are subject to impairment testing. For securities available for sale in an unrealized loss position, management evaluates whether the decline in fair value has resulted in from a credit-related loss or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Management (1) recognizes an allowance for credit losses by a charge to earnings for the credit-related component of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. Other investments: Other investments includes the followings : (i) Federal Home Loan Bank (“FHLB”) Stock - the Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; (ii) Pacific Coast Bankers Bank (“PCBB”) Stock - the Bank is a member of PCBB. PCBB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; and (iii) the Company’s investment in a mutual fund to satisfy the Company’s requirements under the Community Reinvestment Act (“CRA”). CRA mutual fund is reported at fair value. Unrealized gains and losses on a CRA fund are recognized in other income in the Consolidated Statements of Income. F-9 Loans Held for Sale: Certain Small Business Administration (“SBA”) loans that may be sold prior to maturity are designated as held for sale at origination and are recorded at the lower of their cost or fair value less costs to sell, determined on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. Origination fees on loans held for sale, net of certain costs of processing and closing the loans, are deferred until the time of sale and are included in the computation of the gain or loss from the sales of the related loans. A portion of the premium on sale of SBA loans is recognized as gains on sales of loans at the time of the sale. These loans are generally sold with servicing retained. Loans Receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, deferred loan fees and costs, and unearned income. The accrual of interest income on commercial real estate and other commercial and industrial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Credit Losses: The Company employs a modeled approach that takes into account current and future economic conditions to estimate lifetime expected losses on a collective basis. With the adoption of Current Expected Credit Losses, the Company elected not to consider accrued interest receivable in its estimated credit losses because the Company writes off uncollectible accrued interest receivable in a timely manner. The Company considers writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner. The Company has elected to write off accrued interest receivable by reversing interest income. The Company uses transition matrices to develop the Probability of Default ("PD") and Loss Given Default ("LGD") approach, incorporating quantitative factors and qualitative considerations in the calculation of the allowance for credit losses for collectively assessed loans. The model provides forecasts of PD and LGD based on national unemployment rates using regression analysis. The Company incorporates future economic conditions using a weighted multiple scenario approach: baseline and adverse. The Company applies a reasonable and supportable period of one year for the baseline scenario and two years for the adverse scenario, after which loss assumptions revert to historical loss information through a one-year reversion period for the baseline scenario and a two-year reversion period for the adverse scenario. Additionally, the Company aggregated loan portfolio based on similar risk characteristic. The Company elected to use the Call Report codes and loan risk ratings for loan segmentation in allowance for credit losses. The Company used the following assumptions in a sensitivity analysis of our allowance for credit losses: unemployment rate forecast based on supervisory severely adverse scenario, 0% prepayment rates, loan risk grade changes of commercial real estate and commercial and industrial loan portfolio in worst case scenario based on the Company history, and applying a 100% weighting to severely adverse scenario. The analysis demonstrates the sensitivity to the allowance for credit losses to key quantitative assumptions and it is not intended to estimate changes in the overall allowance for credit losses and it does not capture all the potential unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions. In order to quantify the credit risk impact of other trends and changes within the loan portfolio, the Company utilizes qualitative adjustments to the modeled estimated loss approaches. Included in the qualitative portion of our analysis of the allowance for credit losses are key inputs including GDP, unemployment rates, interest rates, asset quality ratios, loan portfolio concentration, California house price index and commercial real estate price index. The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors listed below. The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the loss rates. This matrix considers the following nine factors, which are patterned after the guidelines provided under the Federal F-10 Financial Institutions Examination Council Interagency Policy Statement on the Allowance for Credit Losses, updated to reflect the adoption of Current Expected Credit Losses: • Changes in lending policies and procedures, including changes in underwriting standards and practices for collection, charge-offs, and recoveries; • Actual and expected changes in national and local economic and business conditions and developments in which the institution operates that affect the collectivity of loans; • Changes in the nature and volume of the loan portfolio; • Changes in the experience, ability, and depth of lending management and staff; • Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans; • Changes in the quality of the credit review function; • Changes in the value of the underlying collateral for loans that are not collateral-dependent; • The existence, growth, and effect of any concentrations of credit, and • The effect of other external factors, such as the regulatory, legal and technological environments; competition; and events such as natural disasters. The Company segments loans primarily by Call Report codes (collateral type) and loan risk ratings, considering that the same type of loans share considerable similar risk characteristics. For loans that do not share similar risk characteristics such as nonaccrual loans above $ 500 thousand, the Company evaluates these loans on an individual basis in accordance with ASC 326. Such nonaccrual loans are considered to have different risk profiles than performing loans and are therefore evaluated individually. The Company elected to collectively assess nonaccrual loans with balances below $ 500 thousand along with the performing and accrual loans, in order to reduce the operational burden of individually assessing small nonaccrual loans with immaterial balances. For individually assessed loans, the allowance for credit losses is measured using either 1) the present value of future cash flows discounted at the loan’s effective interest rate; or 2) the fair value of the collateral, if the loan is collateral-dependent. For the collateral-dependent loans, the Company obtains a new appraisal to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, the Company obtains updated appraisals every twelve months from a qualified independent appraiser. If the fair value of the collateral is less than the amortized balance of the loan, the Company recognizes an allowance for credit losses with a corresponding charge to the provision for credit losses. The Company maintains a separate allowance for credit losses for its off-balance sheet commitments. The Company uses an estimated funding rate to allocate an allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn lines of credit can potentially become drawn at any point. The funding rate is determined based on a look-back period of 8 quarters. Credit loss is not estimated for off-balance sheet commitments that are unconditionally cancellable by the Company. Servicing Assets: When SBA loans are sold with servicing retained, servicing assets are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Servicing assets are subsequently measured using the amortization method which requires servicing assets to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the assets as compared to their carrying amount. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the valuation allowance may be recorded as an increase to income. Changes in the valuation allowances are reported with other income on the income statement. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses. F-11 Servicing fee income, which is reported on the income statement as other income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned. The amortization of servicing assets is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material. Company Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation. Equipment and furnishings are depreciated over 3 to 10 years, and leasehold improvements are amortized over the lesser of the terms of the respective leases or the estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes. Repairs and maintenance are charged to operating expenses as incurred. Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Low Income Housing Partnership Investments: The Company records the low income housing partnership investments, net of amortization, using the proportional amortization method and the Company reports it to other assets on the Consolidated Balance Sheets. The Company recognizes tax credits in income tax expense on the Consolidated Statement of Income. The commitments to fund the low income housing partnership investments are also recorded and included to other liabilities on the Consolidated Balance Sheets. The Company utilizes the year to date tax credits on the Company’s income tax returns for the year. Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Earnings per Common Share: Basic and diluted earnings per share is based on the two-class method prescribed in ASC Topic 260, Earnings Per Share (ASC 260). Stock options and restricted stock awards are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock-based compensation plans. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements. Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. F-12 The Company recognizes interest and/or penalties related to income tax matters in income tax expense. There were no interest or penalties recognized in the years ended December 31, 2023 or 2022. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available-for-sale ("AFS") debt securities, which are also recognized as separate components of shareholders’ equity, net of tax. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 13—Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. New Accounting Pronouncements Adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments . The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2023 without electing the fair value option on eligible financial instruments under ASU 2019-05. The Company replaced the current incurred loss accounting model with the Current Expected Credit Losses ("CECL") approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. The adoption of this ASU increased the allowance for credit losses by $ 1.9 million and allowance for off-balance sheet commitments by $ 184 thousand. The Company also recorded a deferred tax assets of $ 624 thousand and a decrease to opening retained earnings of $ 1.5 million on January 1, 2023. The increase to allowance for credit losses was primarily longer duration of home mortgage loans, offset primarily by shorter duration of commercial and industrial ("C&I") loans. The Company did not record an allowance for credit losses on the Company’s available-for-sale debt securities as a result of this adoption. Disclosures for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies. F-13 The following table illustrates the impact of ASU 2016-13: January 1, 2023, Adoption Date ($ in thousands) As Reported Pre-ASU 2016-13 Impact Assets: Loans: Commercial real estate $ 7,826 $ 6,951 $ 875 SBA—real estate 1,369 1,607 ( 238 ) SBA—non-real estate 65 207 ( 142 ) C&I 1,323 1,643 ( 320 ) Home mortgage 10,579 8,826 1,753 Consumer 3 7 ( 4 ) Allowance for credit losses on loans $ 21,165 $ 19,241 $ 1,924 Liabilities: Allowance for credit losses on off-balance sheet commitments $ 446 $ 262 $ 184 FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ("ASU 2022-02") . ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. The Company adopted ASU 2022-02 on January 1, 2023, and the adoption of ASU 2022-02 did not have a significant impact on its consolidated financial statements. In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method . This ASU permits reporting entities to elect to account for tax equity investments, regardless of the tax credit program for which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense. A reporting entity makes an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. The Company adopted ASU 2023-02 on January 1, 2024, and the adoption did not have a material impact on its consolidated financial statements. Recently Issued Accounting Pronouncement under Evaluation In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU amends the disclosure requirements for income taxes, including the requirement for further disaggregation of the income tax rate reconciliation and income taxes paid disclosures. The amendments in this guidance must be applied prospectively, with the option to apply retrospectively. This guidance is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and the adoption is not expected to have a significant impact on the consolidated financial statements. F-14 Note 2 . Securities The following table summarizes the amortized cost, the corresponding amounts of gross unrealized gains and losses, and estimated fair value of available-for-sale ("AFS") debt securities as of December 31, 2023 and 2022: December 31, 2023 ($ in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 48,318 $ — $ ( 4,441 ) $ 43,877 Residential collateralized mortgage obligations 162,142 67 ( 17,750 ) 144,459 Municipal securities - tax exempt 5,726 189 ( 1 ) 5,914 Total AFS debt securities $ 216,186 $ 256 $ ( 22,192 ) $ 194,250 December 31, 2022 ($ in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 55,189 $ — $ ( 5,425 ) $ 49,764 Residential collateralized mortgage obligations 179,953 1 ( 19,909 ) 160,045 Total AFS debt securities $ 235,142 $ 1 $ ( 25,334 ) $ 209,809 There were no sales of AFS debt securities during the years ended December 31, 2023 and 2022. The amortized cost and estimated fair value of AFS debt securities as of December 31, 2023, by contractual maturity, are shown below: ($ in thousands) Amortized Cost Fair Value After one year through five years $ 1,334 $ 1,282 After five years through ten years 3,304 3,022 After ten years 211,548 189,946 Total AFS debt securities $ 216,186 $ 194,250 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. As of December 31, 2023 and 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity. F-15 The following table presents the fair value and the associated gross unrealized losses on AFS debt securities by length of time those individual securities in each category have been in a continuous loss as of December 31, 2023 and 2022: December 31, 2023 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 6,488 $ ( 59 ) $ 37,389 $ ( 4,382 ) $ 43,877 $ ( 4,441 ) Residential collateralized mortgage obligations 25,439 ( 177 ) 105,963 ( 17,573 ) 131,402 ( 17,750 ) Municipal securities - tax exempt 1,842 ( 1 ) — — 1,842 ( 1 ) Total AFS debt securities $ 33,769 $ ( 237 ) $ 143,352 $ ( 21,955 ) $ 177,121 $ ( 22,192 ) December 31, 2022 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 26,347 $ ( 1,485 ) $ 23,417 $ ( 3,940 ) $ 49,764 $ ( 5,425 ) Residential collateralized mortgage obligations 81,320 ( 3,888 ) 71,604 ( 16,021 ) 152,924 ( 19,909 ) Total AFS debt securities $ 107,667 $ ( 5,373 ) $ 95,021 $ ( 19,961 ) $ 202,688 $ ( 25,334 ) As a result of the Company's adoption of ASU 2016-13 on January 1, 2023, available-for-sale debt securities are measured at fair value and are subject to impairment testing. A security is impaired if the fair value of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. As of December 31, 2023, the Company's AFS debt securities consisted of 86 securities, of which 82 were in an unrealized loss position. The unrealized losses from the decline in fair value is attributable to changes in interest rates, and not credit quality. The issuers of the AFS debt securities are of high credit quality. Approximately 97 % of the AFS debt securities are residential mortgage-backed securities and residential collateralized mortgage obligations that were issued by U.S. government-sponsored agencies, such as Ginnie Mae, Fannie Mae and Freddie Mac. The remaining 3 % of the AFS debt securities are tax-exempt municipal securities. We believe that the unrealized losses presented in the previous tables are temporary and no credit losses are expected. As a result, the Company expects full collection of the carrying amount of these securities, does not intend to sell F-16 the securities in an unrealized loss position, and it was more-likely-than-not the Company will not have to sell these securities prior to recovery of amortized cost. Accordingly, for available-for-sale debt securities, the Company did not record allowance for credit losses on January 1, 2023 and did not have allowance for credit losses as of December 31, 2023. As of December 31, 2023 or 2022, there were no pledged securities to secure public deposits, borrowing and letters of credit from FHLB and the Board of Governors of the Federal Reserve System, and for other purposes required or permitted by law. The following table presents the other investment securities, which are included in Other investments on the Consolidated Balance Sheets as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 FHLB stock $ 12,528 $ 8,483 Pacific Coast Bankers Bank ("PCBB") stock 190 190 Mutual fund - Community Reinvestment Act ("CRA") qualified 3,463 3,330 Time deposits placed in other banks 95 95 Total other investments $ 16,276 $ 12,098 The Company has equity investment in a mutual fund with readily determinable fair value of $ 3.5 million and $ 3.3 million as of December 31, 2023 and 2022, respectively, which is measured at fair value with changes in fair value recorded in net income. The Company invested in the mutual fund for CRA purposes. For the mutual fund, the Company recorded a $ 48 thousand unrealized gain and a $ 431 thousand unrealized loss for the years ended December 31, 2023 and 2022, respectively. The unrealized gains (losses) of the mutual fund are included in Other income in the Consolidated Statements of Income. Note 3. Loans and Allowance for Credit Losses on Loans The following table presents the composition of the loan portfolio as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Commercial real estate $ 885,585 $ 842,208 SBA—real estate 224,695 221,340 SBA—non-real estate 14,997 13,377 C&I 120,970 116,951 Home mortgage 518,024 482,949 Consumer 1,574 1,467 Gross loans receivable 1,765,845 1,678,292 Allowance for credit losses ( 21,993 ) ( 19,241 ) Loans receivable, net (1) $ 1,743,852 $ 1,659,051 (1) Includes net deferred loan costs and unamortized premiums of $ 140 thousand and $ 160 thousand as of December 31, 2023 and 2022, respectively. No loans were outstanding to related parties as of December 31, 2023 and 2022. F-17 The following table summarizes the activity in the allowance for credit losses on loans by portfolio segment for the years ended December 31, 2023, 2022 and 2021: ($ in thousands) Commercial Real Estate SBA— Real Estate SBA — Non- Real Estate C&I Home Mortgage Consumer Total Balance as of January 1, 2021 $ 8,505 $ 1,802 $ 278 $ 2,563 $ 2,185 $ 19 $ 15,352 Provision for (reversal of) loan losses (1) ( 355 ) 279 54 285 706 ( 10 ) 959 Charge-offs — ( 59 ) ( 136 ) — — — ( 195 ) Recoveries — — 3 — — 4 7 Balance as of December 31, 2021 8,150 2,022 199 2,848 2,891 13 16,123 Provision for (reversal of) loan losses (1) ( 1,199 ) ( 409 ) 66 ( 1,205 ) 5,935 ( 7 ) 3,181 Charge-offs — ( 14 ) ( 127 ) — — — ( 141 ) Recoveries — 8 69 — — 1 78 Balance as of December 31, 2022 6,951 1,607 207 1,643 8,826 7 19,241 Impact of CECL adoption 875 ( 238 ) ( 142 ) ( 320 ) 1,753 ( 4 ) 1,924 Provision for (reversal of) credit losses 723 321 73 ( 11 ) 466 10 1,582 Charge-offs ( 686 ) ( 46 ) ( 35 ) ( 97 ) — — ( 864 ) Recoveries 52 13 44 — — 1 110 Balance as of December 31, 2023 $ 7,915 $ 1,657 $ 147 $ 1,215 $ 11,045 $ 14 $ 21,993 (1) Excludes reversal of uncollectible accrued interest receivable of $ 205 thousand and $ 438 thousand for the year ended December 31, 2022 and 2021, respectively. F-18 The following table presents the allowance for credit losses on loans and recorded investment (not including accrued interest receivable) by portfolio segment and impairment methodology as of December 31, 2023 and 2022: ($ in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Total As of December 31, 2023 Allowance for credit losses: Commercial real estate $ — $ 7,915 $ 7,915 SBA—real estate 355 1,302 1,657 SBA—non-real estate — 147 147 C&I — 1,215 1,215 Home mortgage — 11,045 11,045 Consumer — 14 14 Total $ 355 $ 21,638 $ 21,993 Loans (1) : Commercial real estate $ — $ 885,585 $ 885,585 SBA—real estate 2,923 221,772 224,695 SBA—non-real estate — 14,997 14,997 C&I — 120,970 120,970 Home mortgage 2,241 515,783 518,024 Consumer — 1,574 1,574 Total $ 5,164 $ 1,760,681 $ 1,765,845 As of December 31, 2022 Allowance for credit losses: Commercial real estate $ — $ 6,951 $ 6,951 SBA—real estate — 1,607 1,607 SBA—non-real estate — 207 207 C&I 279 1,364 1,643 Home mortgage — 8,826 8,826 Consumer — 7 7 Total $ 279 $ 18,962 $ 19,241 Loans (1) : Commercial real estate $ — $ 842,208 $ 842,208 SBA—real estate 423 220,917 221,340 SBA—non-real estate — 13,377 13,377 C&I 279 116,672 116,951 Home mortgage — 482,949 482,949 Consumer — 1,467 1,467 Total $ 702 $ 1,677,590 $ 1,678,292 (1) Excludes accrued interest receivables of $ 7.3 million and $ 6.4 million as of December 31, 2023 and 2022, respectively. F-19 The following table presents the recorded investment in impaired loans and the specific allowance for loan losses as of December 31, 2022. December 31, 2022 (1) ($ in thousands) Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Related Allowance SBA—real estate $ 423 $ 423 $ — $ — C&I 279 — 279 279 Total $ 702 $ 423 $ 279 $ 279 (1) The difference between the unpaid principal balance (net of partial charge-offs) and the recorded investment in the loans was not considered to be material Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. The estimated credit losses for these loans are based on the collateral’s fair value less selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less selling costs at the time of foreclosure. As of December 31, 2023, there were $ 5.2 million of collateral-dependent loans which are primarily secured by residential and commercial real estate, as well as equipment. The allowance for credit losses allocated to these loans as of December 31, 2023 was $ 355 thousand. The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2023, for which repayment is expected to be obtained through the sale of the underlying collateral. ($ in thousands) Hotel / Motel Single-Family Residential Total SBA—real estate $ 2,923 $ — $ 2,923 Home mortgage — 2,241 2,241 Total $ 2,923 $ 2,241 $ 5,164 The following table presents the recorded investment in nonaccrual loans and loans past due 90 or more days and still accruing interest, by portfolio as of December 31, 2023 and 2022: ($ in thousands) Nonaccrual Loans with a Related Allowance for Credit Losses Nonaccrual Loans without a Related Allowance for Credit Losses Total Nonaccrual Loans 90 or More Days Past Due & Still Accruing Total (1) As of December 31, 2023 SBA—real estate $ 2,302 $ 1,136 $ 3,438 $ — $ 3,438 SBA—non-real estate 154 — 154 — 154 Home mortgage 249 2,241 2,490 — 2,490 Total $ 2,705 $ 3,377 $ 6,082 $ — $ 6,082 As of December 31, 2022 SBA—real estate $ 423 $ — $ 423 SBA—non-real estate 51 — 51 C&I 279 — 279 Home mortgage 1,280 — 1,280 Total $ 2,033 $ — $ 2,033 (1) Excludes guaranteed portion of SBA loans of $ 2.0 million and $ 1.0 million as of December 31, 2023 and 2022 , respectively. F-20 Nonaccrual loans and loans past due 90 or more days and still accruing interest include both homogeneous loans that are collectively and individually evaluated for impairment and individually classified impaired loans. The following table represents the aging analysis of the recorded investment in past due loans as of December 31, 2023 and 2022: ($ in thousands) 30-59 Days Past Due 60-89 Days Past Due > 90 Days Past Due Total Past Due (1) Loans Not Past Due Total (2) As of December 31, 2023 Commercial real estate $ — $ — $ — $ — $ 885,585 $ 885,585 SBA—real estate 1,868 932 1,983 4,783 219,912 224,695 SBA—non-real estate 154 — — 154 14,843 14,997 C&I — — — — 120,970 120,970 Home mortgage 4,076 2,730 2,491 9,297 508,727 518,024 Consumer — — — — 1,574 1,574 Total $ 6,098 $ 3,662 $ 4,474 $ 14,234 $ 1,751,611 $ 1,765,845 As of December 31, 2022 Commercial real estate $ — $ — $ — $ — $ 842,208 $ 842,208 SBA—real estate 199 175 — 374 220,966 221,340 SBA—non-real estate 38 — 26 64 13,313 13,377 C&I — — — — 116,951 116,951 Home mortgage 1,707 1,522 342 3,571 479,378 482,949 Consumer — — — — 1,467 1,467 Total $ 1,944 $ 1,697 $ 368 $ 4,009 $ 1,674,283 $ 1,678,292 (1) Excludes guaranteed portion of SBA loans of $ 1.9 million and $ 924 thousand as of December 31, 2023 and 2022, respectively.. (2) Excludes accrued interest receivables of $ 7.3 million and $ 6.4 million as of December 31, 2023 and 2022, respectively. Loan Modifications to Borrowers Experiencing Financial Difficult: On January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” , which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, other than insignificant payment deferrals, other than insignificant term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The disclosure below provide information on loan modification to borrowers experiencing financial difficulty. No charge-offs of previously modified loans were recorded for the year ended December 31, 2023. F-21 The following table presents the amortized cost of modified loans and the financial effects of the modification as of December 31, 2023 by loan class and modification type: Financial Effects of Loan Modification ($ in thousands) Payment Delay Term Extension Total Percentage to Each Loan Type Weighted-Average Payment Deferral (in years) Commercial real estate $ — $ 625 $ 625 0.07 % 1.0 SBA—real estate 5,378 — 5,378 2.39 % 0.8 SBA—non-real estate 131 — 131 0.87 % 0.2 Home mortgage 354 — 354 0.07 % 0.5 Total $ 5,863 $ 625 $ 6,488 The Company tracks the performance of modified loans. A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification. There were no loans that received a modification during the three year ended December 31, 2023 that subsequently defaulted. The following table presents the performance of loans that were modified as of December 31, 2023 since the adoption of ASU 2022-02 on January 1, 2023: ($ in thousands) Current 30-89 Days Past Due > 90 Days Past Due Total Commercial real estate $ 625 $ — $ — $ 625 SBA—real estate 4,641 — 737 5,378 SBA—non-real estate 131 — — 131 Home mortgage 354 — — 354 Total $ 5,751 $ — $ 737 $ 6,488 The Company had no additional commitments to lend to borrowers whose loans were modified as of December 31, 2023. Credit Quality Indicators : The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For consumer loans, a credit grade is established at inception, and generally only adjusted based on performance. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Substandard—Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. F-22 Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The following table presents the loan portfolio's amortized cost by loan type, risk rating and year of origination as of December 31, 2023: December 31, 2023 Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Loans Total (1) ($ in thousands) 2023 2022 2021 2020 2019 Prior Commercial real estate Pass $ 97,114 $ 207,860 $ 154,872 $ 97,137 $ 138,908 $ 163,320 $ 21,059 $ — $ 880,270 Special mention — — — — — — — — — Substandard — 319 — — — 4,996 — — 5,315 Doubtful — — — — — — — — — Subtotal $ 97,114 $ 208,179 $ 154,872 $ 97,137 $ 138,908 $ 168,316 $ 21,059 $ — $ 885,585 Current period charge-offs $ — $ 457 $ 121 $ — $ 91 $ 17 $ — $ — $ 686 SBA— real estate Pass $ 31,920 $ 44,504 $ 26,188 $ 22,732 $ 28,244 $ 64,442 $ — $ — $ 218,030 Special mention — — — — — 1,428 — — 1,428 Substandard — 1,787 1,079 1,136 — 1,235 — — 5,237 Doubtful — — — — — — — — — Subtotal $ 31,920 $ 46,291 $ 27,267 $ 23,868 $ 28,244 $ 67,105 $ — $ — $ 224,695 Current period charge-offs $ — $ — $ 46 $ — $ — $ — $ — $ — $ 46 SBA—non-real estate Pass $ 5,408 $ 2,584 $ 200 $ 1,556 $ 950 $ 3,423 $ — $ — $ 14,121 Special mention — — — — — — — — — Substandard — 591 — — — 187 — — 778 Doubtful — — — — — 98 — — 98 Subtotal $ 5,408 $ 3,175 $ 200 $ 1,556 $ 950 $ 3,708 $ — $ — $ 14,997 Current period charge-offs $ — $ — $ — $ — $ — $ 35 $ — $ — $ 35 C&I Pass $ 15,117 $ 17,939 $ 22,098 $ 4,695 $ 1,720 $ 1,734 $ 55,106 $ 2,561 $ 120,970 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 15,117 $ 17,939 $ 22,098 $ 4,695 $ 1,720 $ 1,734 $ 55,106 $ 2,561 $ 120,970 Current period charge-offs $ 17 $ — $ 80 $ — $ — $ — $ — $ — $ 97 Home mortgage Pass $ 72,182 $ 304,346 $ 79,585 $ 18,634 $ 8,939 $ 31,848 $ — $ — $ 515,534 Special mention — — — — — — — — — Substandard — 2,241 249 — — — — — 2,490 Doubtful — — — — — — — — — Subtotal $ 72,182 $ 306,587 $ 79,834 $ 18,634 $ 8,939 $ 31,848 $ — $ — $ 518,024 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer Pass $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans Pass $ 221,745 $ 577,233 $ 282,943 $ 144,754 $ 178,838 $ 264,767 $ 77,658 $ 2,561 $ 1,750,499 Special mention — — — — — 1,428 — — 1,428 F-23 Substandard — 4,938 1,328 1,136 — 6,418 — — 13,820 Doubtful — — — — — 98 — — 98 Subtotal $ 221,745 $ 582,171 $ 284,271 $ 145,890 $ 178,838 $ 272,711 $ 77,658 $ 2,561 $ 1,765,845 Current period charge-offs $ 17 $ 457 $ 247 $ — $ 91 $ 52 $ — $ — $ 864 (1) Excludes accrued interest receivables of $ 7.3 million as of December 31, 2023. The following table presents the loan portfolio's amortized cost by loan type and risk rating of as of December 31, 2022: ($ in thousands) Pass Special Mention Substandard Doubtful Total (1) Commercial real estate $ 841,645 $ 563 $ — $ — $ 842,208 SBA—real estate 220,348 — 992 — 221,340 SBA—non-real estate 12,897 — 480 — 13,377 C&I 116,396 — 279 276 116,951 Home mortgage 481,669 — 1,280 — 482,949 Consumer 1,467 — — — 1,467 Total $ 1,674,422 $ 563 $ 3,031 $ 276 $ 1,678,292 (1) Excludes accrued interest receivables of $ 6.4 million as of December 31, 2022. Note 4. Premises and Equipment The following table presents information regarding the premises and equipment as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Leasehold improvements $ 9,135 $ 7,998 Furniture and fixtures 4,814 3,983 Equipment and others 3,504 3,288 Total premises and equipment 17,453 15,269 Accumulated depreciation ( 12,205 ) ( 10,869 ) Total premises and equipment, net $ 5,248 $ 4,400 Total depreciation expense included in occupancy and equipment expenses was $ 1.3 million, $ 1.4 million, and $ 1.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Note 5. Servicing Assets The Company recognizes the right to service SBA loans for others as servicing assets when the servicing income the Company receives is more than adequate compensation. Servicing assets are accounted for using the amortization method. Under this method, the Company amortizes the servicing assets over the period of the economic life of the assets arising from estimated net servicing revenue. The Company periodically stratifies its servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Based on the results of the impairment test, there was no valuation allowance for impairment as of December 31, 2023 and 2022. F-24 The following table presents an analysis of the changes in activity for loan servicing assets during the years ended December 31, 2023 and 2022: Year Ended December 31, ($ in thousands) 2023 2022 Beginning balance $ 12,759 $ 12,720 Additions from loans sold with servicing retained 3,400 4,424 Amortized to expense ( 4,418 ) ( 4,385 ) Ending balance $ 11,741 $ 12,759 The fair value of the servicing assets was $ 17.2 million as of December 31, 2023, which was determined using discount rates ranging from 3.75 % to 11.00 % and prepayment speeds ranging from 12.80 % to 13.20 %, depending on the stratification of the specific assets. The fair value of the servicing assets was $ 16.8 million as of December 31, 2022, which was determined using discount rates ranging from 4.40 % to 9.90 % and prepayment speeds ranging from 13.10 % to 13.80 % depending on the stratification of the specific assets. Note 6. Leases As a lessee, the Company enters into leases of buildings and our real estate leases primarily relate to bank branches and office space from nonaffiliated parties with remaining lease terms ranging from 1 to 10 years years as of December 31, 2023. Certain lease arrangements contain extension option which are typically around 5 years. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of December 31, 2023 and 2022, operating right-of-use (“ROU”) assets were $ 8.5 million and $ 9.1 million, respectively, and related liabilities were $ 9.3 million and $ 10.2 million, respectively. Short-term operating leases, which are defined as leases with term of twelve months or less, were not recognized as ROU assets with related lease liabilities as permitted under ASU No. 2016-02. The lease payments on short-term operating leases are immaterial. The Company did not have any finance leases as of December 31, 2023 and 2022. Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the consolidated statements of income. The Company’s occupancy expense also includes variable lease costs which is comprised of the Company's share of actual costs for utilities, common area maintenance, property taxes, and insurance that are not included in lease liabilities and are expensed as incurred. Variable lease costs can also include rent escalations based on changes to indices, such as the Consumer Price Index, where the Company estimates future rent increases and records the actual difference to variable costs. The table below summarizes total lease cost for the periods indicated : Year Ended December 31, ($ in thousands) 2023 2022 Operating lease cost $ 2,280 $ 2,046 Variable lease cost 844 859 Total lease cost $ 3,124 $ 2,905 F-25 The tables below summarize other information related to the Company’s operating leases as of the associated period: Year Ended December 31, ($ in thousands) 2023 2022 Operating right-of-use assets $ 8,497 $ 9,097 Operating lease liabilities 9,341 10,213 Weighted average remaining lease term - operating leases 5.5 years 6.3 years Weighted average discount rate - operating leases 2.47 % 2.44 % Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,511 $ 2,253 Rent expense was $ 3.1 million, $ 2.9 million and $ 2.6 million for the years ended December 31, 2023 and 2022 and 2021, respectively. The table below summarizes the remaining contractually obligated lease payments and a reconciliation to the lease liability reported on the Consolidated Balance Sheets as of December 31, 2023: ($ in thousands) 2024 $ 2,586 2025 1,724 2026 2,085 2027 2,007 2028 1,598 Thereafter 1,925 Total lease payments 11,925 Discount to present value ( 2,584 ) Total lease liability $ 9,341 Note 7. Deposits Time deposits that exceed the FDIC insurance limit of $250 thousand as of December 31, 2023 and 2022 were $ 433.9 million and $ 356.2 million, respectively. The following table presents the scheduled contractual maturities of time deposits as of December 31, 2023: ($ in thousands) 2024 $ 841,257 2025 26,563 2026 17,389 2027 325 2028 and thereafter 255 Total $ 885,789 Deposits from principal officers, directors, and their affiliates as of December 31, 2023 and 2022 were $ 1.8 million and $ 810 thousand, respectively. F-26 Note 8. Borrowing Arrangements As of December 31, 2023, the Company had $ 105.0 million advances from FHLB with a weighted average interest rate of 4.65 % and a weighted average remaining term of 0.9 years, compared to no borrowings as of December 31, 2022. The Company has a letter of credit with the FHLB in the amount of $ 67.0 million to secure a public deposit as of both December 31, 2023 and 2022. The Company had available borrowing capacity from the following institutions as of December 31, 2023: ($ in thousands) FHLB $ 363,615 Federal Reserve Bank 182,989 Pacific Coast Bankers Bank 50,000 Zions Bank 25,000 First Horizon Bank 25,000 Total $ 646,604 The Company has pledged approximately $ 1.39 billion and $ 1.24 billion of loans as collateral for these lines of credit as of December 31, 2023 and 2022, respectively. Note 9. Income Taxes The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) Year Ended 2023 2022 2021 Current income tax expense: Federal $ 6,238 $ 7,959 $ 9,243 State 3,332 4,374 4,885 Total current income tax expense 9,570 12,333 14,128 Deferred income tax expense (benefit): Federal 217 783 ( 1,614 ) State ( 214 ) 298 ( 698 ) Total deferred income tax expense (benefit) 3 1,081 ( 2,312 ) Total income tax expense $ 9,573 $ 13,414 $ 11,816 F-27 The following table presents a reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for the periods indicated: Year Ended December 31, 2023 2022 2021 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Increase (decrease) in tax rate resulting from: Meals and entertainment 0.2 — — State income taxes, net of federal tax benefit 8.0 8.4 8.5 Stock option expense and related excess tax benefits 0.1 — 0.1 Company owned life insurance ( 0.4 ) ( 0.2 ) ( 0.1 ) Other, net ( 0.3 ) ( 0.5 ) ( 0.4 ) Effective tax rate 28.6 % 28.7 % 29.1 % The significant components of deferred tax assets and liabilities are reflected in the following table: December 31, ($ in thousands) 2023 2022 Deferred tax assets: Organizational costs $ 18 $ 20 Allowance for credit losses 6,502 5,688 Loans held for sale — 852 Stock-based compensation 509 386 Accrued compensation 302 272 Lease liability 2,762 3,019 State taxes 675 989 Net unrealized loss on AFS debt securities 6,485 7,491 Nonaccrual loan interest income 224 46 Other 279 77 Total deferred tax assets 17,756 18,840 Deferred tax liabilities: Loan origination costs ( 1,110 ) ( 1,407 ) Depreciation ( 553 ) ( 423 ) Right of use asset ( 2,512 ) ( 2,689 ) Other ( 272 ) ( 5 ) Total deferred tax liabilities ( 4,447 ) ( 4,524 ) Net deferred tax asset $ 13,309 $ 14,316 A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management reevaluated all positive and negative evidence that existed and concluded all deferred tax assets are realizable. Therefore, no valuation allowance was necessary as of December 31, 2023 and 2022. The Company is subject to U.S. Federal income tax as well as various state taxing jurisdictions. The Company is no longer subject to examination by Federal taxing authorities for tax years prior to 2020 and for state taxing authorities for tax years prior to 2019. F-28 There were no significant unrealized tax benefits recorded as of December 31, 2023 and 2022, and the Company does not expect any significant increase in unrealized tax benefits in the next twelve months. Note 10. Commitments and Contingencies Off-Balance-Sheet Credit Risk : In the normal course of business, the Company enters into commitments to extend credit such as loan commitments and standby letters of credits (“SBLC”s). These commitments expose the Company to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheets. Loan commitments represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These commitments generally have fixed expiration dates or contain termination clauses in the event the customer’s credit quality deteriorates. Since many of the commitments are expected to expire without being drawn upon, the commitment amounts do not necessarily represent future funding requirements. The Company applies the same credit underwriting criteria to extend loans and commitments to customers. Each customer’s credit worthiness is evaluated on a case-by-case basis. Collateral may be obtained based on management’s assessment of a customer’s credit. Collateral may include securities, accounts receivable, inventory, property, plant and equipment, and income producing commercial or other properties. The following table presents the distribution of undisbursed credit-related commitments as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Loan commitments $ 257,626 $ 265,110 Standby letter of credit 6,707 5,286 Commercial letter of credit 22 451 Total undisbursed credit related commitments $ 264,355 $ 270,847 The majority of these off-balance sheet commitments have a variable interest rate. Management does not anticipate any material losses as a result of these transactions. Investments in low-income housing partnership : The Company invests in qualified affordable housing partnerships. The following table shows the balance of the investments in low-income housing partnerships and the total unfunded commitments related to the investments in low-income housing partnerships as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Investments in low-income housing partnerships $ 16,887 $ 12,212 Unfunded commitments to fund investments for low-income housing partnerships 11,905 8,748 These balances are reflected in the other assets and other liabilities lines on the Consolidated Balance Sheets. The Company expects to finish fulfilling these commitments during the year ending 2040. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credit and other benefits received and recognizes the amortization in income tax expense on the Consolidated Statements of Income. The Company recognized amortization expense of $ 1.3 million, $ 697 thousand and $ 522 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $ 1.7 million, $ 926 thousand and $ 651 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. F-29 Note 11. Stock-Based Compensation The Company has three stock-based compensation plans currently in effect as of December 31, 2023, as described further below. Total compensation cost that has been charged against earnings for these plans for the years ended December 31, 2023, 2022 and 2021 was $ 1.3 million, $ 1.2 million and $ 558 thousand, respectively. 2005 Plan : In 2005, the Board of Directors and shareholders of the Bank approved a stock option plan for the benefit of directors and employees of the Bank (the “2005 Plan”). The 2005 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. Under the 2005 Plan, the Bank was authorized to grant options to purchase up to 770,000 shares of the Company’s common stock. The exercise prices of the options may not be less than 100 % of the fair value of the Company’s common stock at the date of grant. The options, when granted, vest either immediately or ratably over five years from the date of the grant and expire after ten years if not exercised. The 2005 Plan expired in 2015, and no future grants can be made under the 2005 Plan. A summary of the transactions under the 2005 Plan for the year ended December 31, 2023 is as follows: ($ in thousands, except share data) Number of Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, as of January 1, 2023 30,000 $ 6.18 $ 149 Options granted — — Options exercised ( 30,000 ) 6.18 Options forfeited — — Options expired — — Outstanding, as of December 31, 2023 — $ — $ — Fully vested and expected to vest — $ — $ — Vested — $ — $ — Information related to stock options exercised under the 2005 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2023 2022 2021 Intrinsic value of options exercised $ 86 $ 113 $ 231 Cash received from option exercises 128 128 64 Tax benefit realized from option exercised 2 2 27 2010 Plan : In 2010, the Board of Directors of the Bank approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Bank (the “2010 Plan”). In 2013, the 2010 Plan was amended and approved by the shareholders to increase the number of shares authorized to be issued under from 1,350,000 shares to 2,500,000 shares of common stock. The 2010 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. The exercise prices of stock options granted under the plan may not be less than 100 % of the fair value of the Company’s stock at the date of grant. The options, when granted, vest ratably over five years from the date of the grant and expire after ten years if not exercised. The 2010 Plan expired in August 2020, and no further grants can be made under the 2010 Plan. Restricted stock awards issued under the 2010 Plan may or may not be subject to vesting provisions. Owners of the restricted stock awards shall have all of the rights of a shareholder including the right to vote the shares and to all F-30 dividends (cash or stock). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the stock options outstanding under the 2010 Plan for the year ended December 31, 2023 is as follows: ($ in thousands, except share data) Number of Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, as of January 1, 2023 150,000 $ 8.00 $ 474 Options granted — — Options exercised ( 90,000 ) 8.00 Options forfeited — — Options expired — — Outstanding, as of December 31, 2023 60,000 $ 8.00 $ 177 Fully vested and expected to vest 60,000 $ 8.00 $ 177 Vested 60,000 $ 8.00 $ 177 Information related to stock options exercised under the 2010 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2023 2022 2021 Intrinsic value of options exercised $ 186 $ 224 $ 86 Cash received from option exercises 720 480 25 Tax provision realized from option exercised ( 3 ) — — The weighted average remaining contractual term of stock options outstanding as of December 31, 2023 was 0.3 years. The weighted average remaining contractual term of stock options that were exercisable as of December 31, 2023 was 0.3 years. A summary of the changes in the Company's non-vested restricted stock awards under the 2010 Plan for the year ended December 31, 2023 is as follows: ($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested, as of January 1, 2023 14,500 $ 8.66 $ 162 Awards granted — — Awards vested ( 4,500 ) 6.37 Awards forfeited — — Non-vested, as of December 31, 2023 10,000 $ 9.69 $ 110 Information related to vested restricted stock awards under the 2010 Plan for the periods indicated follows: Year Ended December 31, 2023 2022 2021 Tax benefit (provision) realized from awards vested $ 4 $ — $ ( 85 ) F-31 As of December 31, 2023, the Company had approximately $ 18 thousand of unrecognized compensation cost related to unvested restricted stock awards under the 2010 Plan. The Company expects to recognize these costs over a weighted average period of 0.9 years. 2021 Plan : In 2021, the Board of Directors of the Company approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Company and the Bank (the “2021 Plan”). The 2021 Plan was approved by the Company’s shareholders at the 2021 Annual Meeting. The number of shares authorized to be issued under the 2021 Plan was 1,500,000 shares of the Company’s common stock. The exercise prices of stock options granted under the plan may not be less than 100.00 % of the fair value of the Company’s stock at the date of grant. There are no stock options granted under the 2021 Plan as of December 31, 2023. Restricted stock awards issued under the 2021 Plan may or may not be subject to vesting provisions. Owners of the restricted stock awards shall have all rights of a shareholder including the right to vote the shares and to all dividends (cash or stock). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the changes in the Company’s non-vested restricted stock awards under the 2021 Plan for the year ended December 31, 2023 is as follows: ($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested, as of January 1, 2023 317,366 $ 11.60 $ 3,542 Awards granted 36,280 8.35 Awards vested ( 67,295 ) 10.33 Awards forfeited ( 7,500 ) 12.90 Non-vested, as of December 31, 2023 278,851 $ 11.45 $ 3,053 Information related to vested restricted stock awards under the 2021 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2023 2022 2021 Tax benefit (provision) realized from awards vested $ ( 34 ) $ 12 $ — There were 1,111,457 shares available for future grants of either stock options or restricted stock awards under the 2021 Plan as of December 31, 2023. The Company had approximately $ 1.7 million of unrecognized compensation cost related to unvested restricted stock awards under the 2021 Plan as of December 31, 2023. The Company expects to recognize these costs over a weighted average period of 1.6 years. Note 12. Employee Benefit Plan The Company sponsors a defined contribution plan, 401(k) profit sharing plan (the “401(k) Plan”), designed to provide retirement benefits financed by participant contributions, as well as contributions from the Company. Employees are eligible to participate in the 401(k) Plan as of the first day of the first calendar month after the date they have completed three months of service with the Company and have attained the age of 18 . Each employee is allowed to contribute to the 401(k) Plan up to the maximum percentage allowable, not to exceed the limits of applicable IRS Code Sections. Each year, the Company may, in its discretion, make matching contributions to the 401(k) Plan. Total employer contributions to the 401(k) Plan amounted to $ 986 thousand, $ 867 thousand and $ 752 thousand for the years ended December 31, 2023 and 2022 and 2021, respectively. F-32 Note 13. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis, such as AFS securities and equity investments. Additionally, from time to time, the Company records fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower of cost or fair value accounting and write-downs of individual assets. The Company classifies its assets and liabilities recorded at fair value as one of the following three categories and a financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement: Level 1—Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3—Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. Securities AFS : The fair values of investment securities are determined by matrix pricing, which is a mathematical technique used to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management obtains the fair values of investment securities on a monthly basis from a third-party pricing service. Other Investment: The Company has an equity investment with readily determinable fair value. The fair value for the equity investment with readily determinable fair value is obtained from unadjusted quoted prices in active markets on the date of measurement and classified as Level 1. F-33 Assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 are summarized below: Fair Value Measure on a Recurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 43,877 $ — $ 43,877 $ — Residential collateralized mortgage obligations 144,459 — 144,459 — Municipal securities - tax exempt 5,914 — 5,914 — Other investments: Mutual fund - CRA qualified 3,463 3,463 — — December 31, 2022 U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 49,764 $ — $ 49,764 $ — Residential collateralized mortgage obligations 160,045 — 160,045 — Other investments: Mutual fund - CRA qualified 3,330 3,330 — — There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications for the years ended December 31, 2023 or 2022. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value and write-downs of individual assets. Collateral-dependent loans : Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. Prior to the adoption of ASU 2016-13, impaired loans were evaluated and valued at the time the loan was identified as impaired, at the lower of cost or fair value. Fair value for both collateral-dependent and impaired loans are measured based on the value of the collateral securing these loans and are classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment, inventory and accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company. The value of business equipment is based on an appraisal by qualified licensed appraisers hired by the Company if significant, or the equipment’s net book value on the business’ financial statements. Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports. Appraisals may utilize a single valuation approach or a combination or approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Appraised values are reviewed by management using historical knowledge, market considerations, and knowledge of the client and client’s business. F-34 The following table presents the fair value hierarchy and fair value of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of December 31, 2023 and 2022: Fair Value Measure on a Nonrecurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Collateral-dependent loans: SBA—real estate $ 1,432 $ — $ — $ 1,432 Total $ 1,432 $ — $ — $ 1,432 December 31, 2022 Impaired loans: SBA—real estate $ 423 $ — $ — $ 423 Total $ 423 $ — $ — $ 423 Total The following table presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the period presented: Year Ended December 31, ($ in thousands) 2023 2022 2021 Collateral-dependent loans: SBA—real estate $ — $ 28 $ 105 Total $ — $ 28 $ 105 The following table presents information about significant unobservable inputs utilized in the Company’s nonrecurring Level 3 fair value measurements as of December 31, 2023 and 2022: ($ in thousands) Fair Value Measurements (Level 3) Valuation Techniques Unobservable Inputs Range of Inputs Weighted- Average of Inputs (1) December 31, 2023 Collateral-dependent loans: SBA—real estate $ 1,432 Income approach - income capitalization Capitalization rate 9.3 % to 11.0 % 9.9 % December 31, 2022 Impaired loans: SBA—real estate $ 423 Income approach - income capitalization Capitalization rate 11.5 % 11.5 % (1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2023 and 2022. F-35 Financial Instruments : The carrying amounts and estimated fair values of financial instruments that are not carried at fair value on a recurring basis as of December 31, 2023 and 2022 are as follows. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheets: December 31, 2023 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Fair Value Financial assets: Cash and cash equivalents $ 91,216 $ 91,216 $ — $ — $ 91,216 Loans receivable, net 1,743,852 — — 1,793,258 1,793,258 Accrued interest receivable, net 8,259 69 859 7,331 8,259 Other investments: FHLB and PCBB stock 12,718 N/A N/A N/A N/A Time deposits placed 95 — 95 — 95 Servicing assets 11,741 — — 17,218 17,218 Financial liabilities: Deposits 1,807,558 — 1,808,444 — 1,808,444 FHLB advances 105,000 — 104,231 — 104,231 Accrued interest payable 12,628 — 12,628 — 12,628 December 31, 2022 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Fair Value Financial assets: Cash and cash equivalents $ 82,972 $ 82,972 $ — $ — $ 82,972 Loans held for sale 44,335 — 47,217 — 47,217 Loans receivable, net 1,659,051 — — 1,626,036 1,626,036 Accrued interest receivable, net 7,180 51 716 6,413 7,180 Other investments: FHLB and PCBB stock 8,673 N/A N/A N/A N/A Time deposits placed 95 — 95 — 95 Servicing assets 12,759 — — 16,845 16,845 Financial liabilities: Deposits 1,885,771 — 1,880,508 — 1,880,508 Accrued interest payable 2,771 — 2,771 — 2,771 Note 14. Regulatory Capital Matters The Bank is subject to certain risk-based capital and leverage ratio requirements under the U.S. Basel III capital rules administered by the federal and state banking agencies. Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company's operations or financial condition. The Basel III capital rules also require the Bank to maintain a capital conservation buffer of 2.50 % above the minimum risk-based capital ratios in order to absorb losses during periods of economic stress, effective January 1, 2019. Banking institutions with a ratio of common equity tier 1 capital to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends. equity repurchases and compensation based on the amount of the shortfall. Management believes that as of December 31, 2023 and 2022, the Bank met all capital adequacy requirements to which they are subject to. Based on recent changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. F-36 The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated: December 31, 2023 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 229,544 13.77 % N/A N/A N/A N/A Bank 227,773 13.66 $ 133,353 8.00 % $ 166,691 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A Bank 206,936 12.41 100,014 6.00 133,353 8.00 Common equity Tier 1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A Bank 206,936 12.41 75,011 4.50 108,349 6.50 Tier 1 capital (to average assets) Consolidated 208,707 9.57 N/A N/A N/A N/A Bank 206,936 9.49 87,207 4.00 109,008 5.00 (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. December 31, 2022 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 213,862 13.06 % N/A N/A N/A N/A Bank 211,981 12.94 $ 131,020 8.00 % $ 163,775 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated 194,358 11.87 N/A N/A N/A N/A Bank 192,477 11.75 98,265 6.00 131,020 8.00 Common equity Tier 1 capital (to risk-weighted assets) Consolidated 194,358 11.87 N/A N/A N/A N/A Bank 192,477 11.75 73,699 4.50 106,454 6.50 Tier 1 capital (to average assets) Consolidated 194,358 9.38 N/A N/A N/A N/A Bank 192,477 9.29 82,836 4.00 103,545 5.00 (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. Note 15. Earnings Per Share Basic EPS is calculated using the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to dividends paid to holders of the Company's common stock. These restricted stock awards meet the definition of participating F-37 securities based on their respective rights to receive nonforfeitable dividends, and they are treated as a separate class of securities in computing basic EPS. Participating securities are not included as incremental shares in computing diluted EPS. Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. For each of the periods presented in the table below, diluted EPS calculated under two-class method was more dilutive. The following table presents the calculation of net income applicable to common stockholders and basic and diluted EPS for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands, except share and per share data) 2023 2022 2021 Basic Net income $ 23,918 $ 33,310 $ 28,840 Distributed and undistributed earnings allocated to participating securities ( 476 ) ( 704 ) ( 330 ) Net income allocated to common shares $ 23,442 $ 32,606 $ 28,510 Weighted average common shares outstanding 15,149,597 15,171,240 15,087,686 Basic earnings per common share $ 1.55 $ 2.15 $ 1.89 Diluted Net income allocated to common shares $ 23,442 $ 32,606 $ 28,510 Weighted average common shares outstanding for basic earnings per common share 15,149,597 15,171,240 15,087,686 Add: Dilutive effects of assumed exercises of stock options 9,260 60,178 67,661 Average shares and dilutive potential common shares 15,158,857 15,231,418 15,155,347 Diluted earnings per common share $ 1.55 $ 2.14 $ 1.88 No share of common stock was antidilutive for the years ended December 31, 2023, 2022 and 2021. Note 16. Parent Company Condensed Financial Statements The following tables present the Parent Company-only condensed financial statements: Condensed Balance Sheets December 31, ($ in thousands) 2023 2022 Assets Cash and cash equivalents $ 1,653 $ 1,559 Investment in bank subsidiary 190,855 175,035 Deferred tax assets — 21 Other assets 177 301 Total assets $ 192,685 $ 176,916 Liabilities and shareholders' equity Other liabilities $ 59 $ — Shareholders’ equity 192,626 176,916 Total liabilities and shareholders' equity $ 192,685 $ 176,916 F-38 Condensed Statements of Income and Comprehensive Income Year Ended December 31, ($ in thousands) 2023 2022 2021 Income Dividends from bank subsidiary $ 11,789 $ 6,675 $ 5,123 Expense Salaries and employee benefits 227 219 226 Occupancy and equipment 49 49 65 FDIC insurance and regulatory assessments — — 8 Directors’ fees 228 214 135 Other expense 445 395 169 Total expense 949 877 603 Income before income tax benefit and undistributed net income of bank subsidiary 10,840 5,798 4,520 Income tax benefit 252 202 141 Equity in undistributed net income of bank subsidiary 12,826 27,310 24,178 Net income 23,918 33,310 28,839 Other comprehensive income (loss), net of tax 2,392 ( 16,646 ) ( 2,037 ) Comprehensive income $ 26,310 $ 16,664 $ 26,802 Condensed Statements of Cash Flows Year Ended December 31, ($ in thousands) 2023 2022 2021 Cash flows from operating activities Net income $ 23,918 $ 33,310 $ 28,839 Adjustments: Equity in undistributed net loss of bank subsidiary ( 24,615 ) ( 33,985 ) ( 29,301 ) Change in other assets 145 ( 164 ) ( 124 ) Change in other liabilities 59 ( 33 ) ( 414 ) Net cash used in operating activities ( 493 ) ( 872 ) ( 1,000 ) Cash flows from investing activities Net cash from investing activities — — — Cash flows from financing activities Repurchase of common stock ( 3,934 ) — ( 28 ) Cash dividend paid on common stock ( 7,269 ) ( 6,674 ) ( 5,132 ) Proceeds from subsidiaries 11,789 6,675 5,123 Net cash provided by (used in) financing activities 586 1 ( 37 ) Net change in cash and cash equivalents 93 ( 871 ) ( 1,037 ) Cash and cash equivalents at beginning of year 1,560 2,431 3,468 Cash and cash equivalents at end of year $ 1,653 $ 1,560 $ 2,431 F-39